Target: ₹1,756

CMP: ₹2,079.85

Colgate Palmolive’s Q2FY24 print was in line; revenue/EBITDA/PAT grew 6.1/18.7/22.3 per cent. Domestic sales grew 6.6 per cent led by flat volumes. Management said, toothpaste category volumes remained flattish in rural markets, although improved sequentially.

We note Colgate’s growth was driven by its focused strategy of growing oral care category driven by newly launched formulation for its flagship product CDC (with Arginine technology). Recently Colgate launched new ad-campaign to drive twice a day brushing habits. Management said, there are signs of recovery in rural markets, the toothbrush category saw persistent pressure on volumes due to rising competition from Oral-B.

Further, its exports sales declined steadily in Q2. Gross margin improved by 510bp at 68.6 per cent y-o-y, though EBITDA grew by 18.7 per cent to ₹470 crore supported by lower other expenses (-2.9 per cent) despite higher A&P/employee cost grew by 30.2/12.4; EBITDA margin settled at 32.4 per cent (+343bp).

As we had argued in the past the ad-spends now risen to 14.5 per cent of sales. With mid-single digit volume growth in FY24 we tweaked earning and introduced FY26 earnings and retain Sell, with a revised DCF-based TP of ₹1,756 (implied 36.9x avg. of FY25/26E EPS).