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Colgate’s 1QFY27 revenue was 2% above consensus’ estimates while EBITDA and PAT were in-line. Revenue grew in double digits (+12% yoy) – the strongest growth in the last 8 quarters, albeit on a low base. Volume grew in a high single digit (-4%) on a low base. On 2Y CAGR basis, volume growth was still weak, at 1.4%. Gross margin expanded by 100bps yoy, led by better mix and cost efficiencies. Colgate re-invested the gross margin improvement, aimed at driving growth – which is encouraging. EBITDA margin declined by 140bps yoy due to sharp rise in A&P spends (+34% yoy) and impact from the inverted duty structure (IDS). We expect revenue growth to be strong in 2Q on a favorable base; however, it is likely to decline sequentially to a mid-to-high single digit in 2HFY27 amid elevated competitive intensity (from larger FMCG players as well as D2C brands) and log more in line with category growth. The company is focusing on driving growth in the premium portfolio which should aid gross margin. However, EBITDA margin is likely to remain under pressure mainly due to higher A&P spends toward driving growth (IDS impact will come in the base from 3Q, though). We marginally change our estimates and forecast sales/earnings CAGR of ~8% over FY26-29E. We maintain REDUCE and TP of Rs2,050 (35x Jun-28E EPS) due to weak outlook on both growth and margins

1QFY27 result summary

Revenue grew ~12% yoy on a low base (-4% in 1QFY26), coming 2-3% above our and consensus’ estimates. Volume growth was strong at a high single digit, albeit on a low base. Gross margin expanded by 100bps yoy (up by 10bps qoq) to ~70%, likely aided by better mix, cost efficiency, and calibrated pricing actions. However, EBITDA margin declined by 140bps yoy to ~30.1% on account of higher A&P spends (+34% yoy) and impact from the inverted duty structure (~60bps, per our calculation). Adj PAT grew 8% yoy (in line with consensus), led by higher other income and lower depreciation expense

Other details

1) Premium toothpaste portfolio witnessed strong growth during the quarter, alongside sustained growth in the core portfolio.

2) Gross margin expansion was on the back of better mix (higher growth in premium) and cost-saving initiatives. 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 ‘Colgate MaxFresh Berry Blast’ with its proprietary Ultrafreeze technology. In toothbrush, the company launched ‘Colgate Total Active Prevention Foaming Clean Toothbrush’, which is priced at the premium-end.

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