Q1FY24 review: Colgate India: Oral care back in action

27 Jul 2023 , 11:01 AM

Colgate delivered a top-line growth of 11% YoY, driven by highdouble-digit growth in toothpastes; led by a mix of volume as well pricing. Early signs of rural recovery and the Naturals segment plateauing out bode well for Colgate. In these times, the company’s main focus remains on driving frequency and premiumisation. Analysts of IIFL Capital Services upgrade their EPS estimates by 6-7% for FY24-26 and maintain ADD with TP of Rs2,050. 

Significant beat: 

Overall sales growth came in at 10.8% (3.6% above estimates) in Q1 with domestic sales growing 12.3%YoY, driven by high double-digit growth in toothpaste led by a mix of volume and pricing. Ebitda increased 28%YoY (11.5% above analysts of IIFL Capital Services estimate), driven by gross margin expansion and lower Other expenses (16% of sales vs 17.8% in Q1FY23). Ebitda margin came in at 31.8% (+ 436bps YoY), which was 227 bps higher than their estimates. 

Premiumisation to drive Ebitda growth: 

Penetration in the toothpaste category is near 100%. Hence, growth in the category is to be led mainly through increasing usage and premiumisation. The company has been launching products in the higher ASP index such as ‘Visible white’, ‘Colgate Total’ and ‘Perio Gard’ to drive premiumisation. It has re-launched its strongest SKU ‘Colgate Strong Teeth’ with Arginine technology and has received heartening response. Colgate has launched India’s first-ever Whitening pen with the Dentist partners in Q1 – this pen is a revolutionary new at-home whitening system. 

EPS upgrade of 6-7%: 

Analysts of IIFL Capital Services upgrade their EPS estimates for FY24-26 by 6-7% to factor in the beat on top line, driven by strong performance in toothpaste category, and margins led by moderation in inflationary pressure. With the gross margin pressure easing, the company has increased ad-spends to the pre-Covid levels, so as to drive consumption and premiumisation. Flattening of market share for the Naturals subcategory in toothpaste over the last 3 years after a steep increase of ~900bps in the previous 3.5 years — is a big positive for Colgate. They expect an EPS Cagr of 12% over FY23-26 and maintain ADD with a TP of Rs2,050.