Colgate-Palmolive (India) Ltd. share price target

With a limited upside potential from the CMP, we ascribe a HOLD rating to the stock.

Our SELL call on Colgate has been a factor of limited visibility on earnings over
the medium term, given that high margin gets into the base and structural
growth remain elusive.

While Colgate’s revenue and profit growth beat peers (price/mix +8%, volumes +2%, albeit on a low base), it's still underwhelming. At ~70% gross margin and >35% adj. EBITDA margin, it is over-earning, though the basic product (white toothpaste with the highest salience in its portfolio) is a functional product.

Recommendation With a limited upside potential from the CMP, we ascribe a HOLD rating on the stock.

For Q3FY24, CLGT reported revenue of INR 13,957 Mn, a growth of 8.1% YoY but a decline of 5.1% QoQ. The toothpaste segment achieved double-digit growth and positive volume growth.

For Q2FY24, CLGT reported revenue of INR 14,711 Mn, a growth of 6.0% YoY/ 11.1% QoQ. This growth was against the previously reported YoY growth of 10.6%/ 3.8%/ 0.9%/ 2.6% YoY for Q1FY24/ Q4FY23/ Q3FY23/ Q2F23, respectively. The YoY growth rate moderated from the strong growth of 10.6% YoY seen in Q1FY24, which had a favourable base benefit.

Pricing Led the Growth: Q2FY24 results were ahead of our estimates. The company's revenue grew by 6.1% YoY (Domestic sales grew by 6.6%), while volume stood flat

2QFY24 revenue growth was below our and consensus estimates but PAT was above estimates driven by higher other income. Colgate reported domestic revenue growth of ~7% (high-single digit growth in toothpaste portfolio), which appears to be driven by balanced volume and price/mix growth.