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Q4FY23 Review: Colgate India: Lower ad-spends boost margins

15 May 2023 , 10:36 AM

Colgate delivered a domestic top-line growth of 6% YoY, driven by high-single-digit growth in Toothpastes led by pricing actions. The category continues to face headwinds recording low-singledigit volume declines dragged by rural slowdown. Naturals segment has plateaued out, which bodes well for Colgate. In these times, the company’s main focus remains on driving frequency and premiumisation.

Significant beat on margins: 

 Overall sales growth came in at 3.7% (in-line) in Q4. However, domestic sales were up 5.7% driven by highsingle-digit growth in Toothpastes led by pricing. Ebitda increased 5%YoY (13% above our estimate) driven by gross margin expansion and lower ad-spends (10.7% of sales vs 11.3% in Q4FY22). Ebitda margin came in at 33.7% (+ 48bps YoY, +547 bps QoQ), 323 bps higher than our 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 ‘PerioGard’ to drive premiumisation. It has re-launched its strongest SKU ‘Colgate Strong Teeth’ with Arginine technology at an increased price point of Rs69 / 100gm (vs Rs63, 7-8 months back). Moreover, launch of new SKUs under ‘Colgate Gentle’ to drive premiumisation in toothbrushes.

EPS upgrade of ~3%: 

Analysts at IIFL Capital Services upgrade their EPS estimates for FY24/FY25 by 3% to factor in the strong beat on margins, led by moderation in inflationary pressure. With gross margin pressure easing, Colgate is to focus on increasing ad-spends to drive consumption and premiumisation. Flattening market share for Naturals in Toothpastes over the last 3 years after a steep increase of ~900bps in the previous 3.5 years, is a big positive for Colgate. Analysts of IIFL Capital Services expect an EPS Cagr of 10% over FY23-26 and maintain ADD with a TP of Rs 1,800.

Related Tags

  • BOI
  • Colgate India
  • Colgate India Q4
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