Colgate-Palmolive (India) Ltd. share price target

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

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.

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.

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

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.

1QFY24 was above our and consensus estimates. Colgate reported double-digit revenue growth of 11% (high teens growth in toothpaste portfolio) on a normalised basis after ~5 years, which appears to be driven by balanced volume and price/mix growth.

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

Company Outlook & Guidance: We increase our FY24/25 estimates by 11%/10%. However, due to limited upside potential from the CMP, we maintain our HOLDratingon the stock.

4QFY23 was in line with our estimates, but likely beat consensus. Recovery in revenue growth was modest and driven by price hike while volumes declined ~1% (albeit better than overall category decline).