While Colgate continues to push premiumisation and pricing to protect margins, the lack of volume recovery and pressure on core segments suggest that margin stability could be tested going ahead.
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ICICI Securities Report
We've been long critical of Colgate Palmolive India Ltd.'s (consistent) strategy of-
not investing (enough) for toothpaste category growth (our opinion),
not aggressive (enough) in diversifying outside of oralcare (parent has a good home and personal care portfolio though),
over-earning, in our opinion (operating margins at ~37% after adding back royalty).
Disappointing Q4 FY25 is just the beginning (revenue declined 2% YoY) of a prolonged winter. In the near-past, it has pursued a price-hike driven revenue growth strategy, which we have always believed to be unsustainable (reminds us of ~2010 era in Nestle India).
At 45x FY27E P/E, we reckon stock has the potential to derate (further meaningfully) to 30x, despite 12% underperformance vs Nifty (last 12 months).
Downgrade to Sell (from Hold) with a target price of Rs 1,800.
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