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Cavities in growth as Q4 disappoints

Colgate Palmolive (CLGT IN) saw success in driving category growth and premiumization through H1FY25. However, subdued urban demand and heightened competition in H2FY25 have tempered volume growth. Due to near-term challenges, we expect a revenue CAGR of 6.4% and an EBITDA CAGR of 6.9% during FY25-28E. We reiterate Reduce with a lower TP of INR 2,500 on 42x FY27E P/E.

Weak urban demand and increased competition hit performance: CLGT reported a 1.9% YoY decline in Q4 revenue to INR 14.5bn, in line with our estimates. Volume remains flat, while realization dipped due to higher promotional spending amid intensified competition. In FY25, domestic sales grew 5.6%, driven by mid-single-digit volume growth in toothpaste. The oral care category continues to face headwinds from weak demand across the bottom 70% of urban consumers, dragging the mass segment, while the top 30% remains resilient, supporting growth in its premium portfolio. Rural demand outpaced urban for the third straight quarter. Despite muted consumption trends, competitive intensity remains high, pressuring realization, as trade investments rise across the industry. Management says this intensity will ease gradually, with urban recovery expected in the upcoming quarters and stronger growth projected in H2FY26.

Strategic priorities to continue: Management expects near-term market conditions to remain challenging but remains focused on driving growth through its strategic priorities, such as bolstering consumption and investing in superior products. The company is actively working to grow its top line and drive volume by executing this focused strategy. Despite the overall market slowdown, CLGT’s premium portfolio is growing 2–4x faster than both the company average and the broader market. Recent product launches, including Visible White Purple and the MaxFresh sensorial range, have shown promising early traction. Additionally, it is leveraging advanced technologies, such as AI-based dental screening, to enhance oral health awareness and stimulate consumption.

EBITDA margin in a healthy range: EBITDA margin declined by 170bp YoY to 33.6%, ahead of our estimates of 30.6%, due to elevated operating expenses, although partly cushioned by gross margin gains driven by efficiency despite rising competition. CLGT plans to step up brand investments to strengthen market share while aiming to sustain EBITDA margin in the low-30 range.

Reiterate Reduce with a lower TP of INR 2,500: We cut our earnings estimates by 3.5% and 3.7% for FY26 and FY27, respectively, due to lower revenue growth. We introduce FY28 estimates. Given a muted revenue CAGR of 6.4% and an EBITDA CAGR of 6.9% during FY25- 28E, we reiterate Reduce with a lower TP of INR 2,500 from INR 2,760 based on 42x (from 45x) FY27E target P/E, given a muted demand environment. Key risk to our view is earlier-thanestimated recovery.

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