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Colgate’s 2QFY27 revenue was 1-2% below our and consensus’ estimates, while the EBITDA and PAT miss was as much as 7-8%. Revenue grew in double digits (+12% yoy) on a low base, but was still weak on 2Y CAGR basis (+2.6%). Volume grew in a high single digit, again on a low base (-8% in 2QFY26), and was flattish on 2Y CAGR basis. We believe gross margin expanded by 40bps yoy owing to better mix and cost efficiencies. However, the company stepped up its investments in brand building and premiumization which led to a 40% yoy rise in A&P spends. As a result, EBITDA margin declined by 280bps yoy (including the impact from inverted duty structure—IDS). Going forward, we expect revenue growth to remain modest (mid-single digit) in 2HFY27 due to weak demand and elevated competitive intensity (from larger FMCG players as well as D2C brands). While the IDS impact will come in the base from 3Q, we still expect EBITDA margin to remain under pressure, mainly due to increased A&P spends. As a result, we expect EBITDA growth to lag sales growth in 2HFY27. We cut FY27-29E earnings by 2-3%, as we lower our margin assumptions to factor in the elevated A&P spends. Also, we cut our multiple by ~10% due to deteriorating growth profile and weak outlook. We now forecast sales/earnings CAGR of ~8%/7% over FY26-29E and reiterate REDUCE while cutting our TP by ~15% to Rs1,750 (30x Sep-28E EPS).

2QFY27 result summary

Revenue grew ~12% yoy on a low base (-6% in 2QFY26) and came 1-2% below our and consensus’ estimates. Volume growth was strong at a high single digit, albeit on a low base (flattish on 2Y CAGR basis). Gross margin expanded by 40bps yoy (down by 10bps qoq) to ~69.9%, aided by better mix, cost efficiency, and calibrated pricing actions. However, EBITDA margin declined by 280bps yoy to ~27.8% mainly on account of higher A&P spends (+40% yoy) and impact from the inverted duty structure. Adjusted PAT grew 4% yoy, which was 7-8% below our and consensus’ estimates.

Other details

1) The toothpaste portfolio delivered a high single-digit volume growth led by the premium toothpaste range and strong performance in Colgate MaxFresh.

2) The gross margin improvement was ploughed back for brand-building and driving category premiumization, per the management.

3) Commodity prices have turned more volatile due to geopolitical uncertainties, and the company plans to manage its margin profile through cost efficiencies and calibrated pricing actions.

4) New launches: In toothpaste, the company launched a new Bluey-themed toothpaste with a vacuum-locked pump dispenser. In toothbrush, the company launched a ‘Harry Potter themed’ oral care line for children and adults.

5) Colgate announced its 1st interim dividend, of Rs24 per share.

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