PL Stock Report - Colgate Palmolive (CLGT IN) - Q1FY24 Result Update - Demand revival, benign RM aid growth - HOLD

Colgate Palmolive (CLGT IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs1,898 | TP: Rs1,869

Q1FY24 Result Update - Demand revival, benign RM aid growth

Quick Pointers:

♦ Volume growth of 4.3%, urban demand resilient, rural showing green shoots

♦ Premium segment doing well, re-launch of Colgate strong teeth positive

We increase FY24/25 EPS by 7.3%/5.2% factoring 1) higher volume growth due to resilient demand in urban India & green shoots in rural demand, 2) low base effect (5 consecutive quarters of volume decline) and 3) benefits of benign raw material, prices. CLGT reported ~4.3% volume growth led by strong traction in premium segments and benefits of re-launch of Colgate Strong Teeth. CLGT continues to offer superior science backed products and push the envelope to grow the category supported by healthy ad spends.

On an indexed basis, we estimate that Colgate has regained the volume it lost and has crossed 1QFY20 numbers this quarter. We expect pricing impact to wane gradually while benign RM and low to mid-single volume growth will enable mid to high teens profit growth for coming couple of quarters. We estimate 7.8% sales and 12.6% PAT CAGR over FY23-25. We value CLGT at 38x Mar’25 EPS and assign a target of Rs1869 (earlier Rs1636 on 35xMar’25 EPS) with 2.3% Dividend yield, 90% payout and ~90% ROCE. Retain Hold.

Sales grew 10.6%, EBITDA Margins expand by 438bps YoY: Revenues grew by 10.6% YoY to Rs13.2bn (PLe: Rs12.5bn). Gross margins expanded by 211bps YoY/157bps QoQ to 68.4% (PLe: 66.3%). EBITDA grew by 28.4% YoY to Rs4.2bn (PLe:Rs3.5bn); Margins expanded by 438bps YoY/-187bps QoQ to 31.6% (PLe:28.2%). A&P spends expanded by 8bps YoY/312bps QoQ to 13.7%. Adj. PAT grew by 33.9% YoY to Rs2.9bn (PLe:Rs2.4bn)

Key Highlights:

♦ Estimate 4.25% volume growth with balance accounted for by pricing and mix change.

♦ Rural demand showing green shoots, urban demand positive.

♦ CLGT witnessing upgradation as premium products are growing faster.

♦ Colgate Strong Teeth re-launched with improved formula and new communication. Relaunch of Colgate Strong Teeth adding to growth.

♦ Strong growth driven by good execution with strategy focused on growing the oral care category.

♦ Launched Colgate India’s first ever Whitening pen with dentist partners.

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