Colgate Q2 Results Review - Reports Lowest Operating Margin In Last Seven Quarters: Yes Securities

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Yes Securities Report

Colgate-Palmolive India Ltd.'s Q2 FY25 operating performance was below our as well as street expectations. Domestic revenue grew by 10.5% on the back of high single digit volume growth in toothpaste segment (slightly lower than our estimate of 9.5%).

Gross margin came in below expectation this quarter, down 210 bps QoQ. This along with higher advertising, sales and promotion (+100 bps YoY and up 17.8% on absolute basis) and increase in other overheads (+80bps YoY) meant that there was a sharp miss on operating margins (down 210bps YoY to 30.7%).

Pickup in rural market (outpaced urban markets for third straight quarter), better growth in core brands post relaunch/restaging done in H2 FY24, activations through campaigns, along with premiumisation should continue to support near-term growth even while Colgate expects continued difficult market conditions.

We roll-forward our valuation to FY'27E EPS and assign a target multiple of ~50x, which revises our target price to Rs 3,500 (Rs 3,300 earlier). Maintain Neutral. Market share movement and update on diversification in personal care will aid further rerating.

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