Colgate Q3 Results Review - Margin Surprises; Valuations Out Of Comfort: Yes Securities

Yes Securities Report

Colgate-Palmolive India Ltd. delivered highest ever gross and Ebitda margin in Q3 FY24 while topline was in-line with our estimate. Operating beat seems to be driven by better mix plus pricing as gross margin saw a 340 basis points QoQ improvement, coming as a surprise especially post the analyst meet commentary in August-23 guiding modest improvement from Q1 FY24 levels.

Toothpaste volume have seen expansion in Q3 FY24, but growth looks lower than our estimate of 5% because of the assumed sharp mix plus pricing improvement.

Recent relaunch/restaging of key brands and activations through campaigns, should continue to support near-term growth. Any improvement in market growth rates, especially in rural, should only further accelerate the volume momentum.

There has been ~24% upward movement in stock price post Q2 FY24 result. We downgrade the stock to 'Reduce' rating with a revised target price of Rs 2,350 (Rs 2,080 earlier), as we assign target multiple of ~43 times on September ’2025E earning per share.

For further rerating, market share improvement in core and update on inorganic opportunities being explored in personal care will be vital.

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