Colgate revenue accelerates on volume recovery as premiumization and brand investment build growth

Investment View and Valuation

Motilal Oswal Financial Services Limited (MOFSL) retains its Buy rating on Colgate with a target price of Rs 2,500, based on 40 times March 2027E EPS. The broker views 1QFY27 as a positive start to FY27, as Colgate delivered double-digit revenue growth for the first time in six quarters, supported by broad-based momentum across its core and premium portfolios.

MOFSL expects management's focus on volume recovery, selective pricing, brand investment and premiumization to support sustained top-line growth.

1QFY27 Revenue and Volume Performance

Colgate reported 1QFY27 revenue growth of 12 per cent year on year to Rs 16.0 billion, ahead of MOFSL's estimate of Rs 15.7 billion. This performance followed a prior-year base that had declined 4.2 per cent.

Volume growth was 6-7 per cent, exceeding the broker's 4.5 per cent estimate, while intrinsic toothpaste volume growth was reported at 6 per cent. Growth was balanced between price and volume.

For context, MOFSL noted that Dabur's oral-care business grew at a high-single-digit rate and HUVR's oral-care business delivered mid-single-digit revenue growth during the quarter.

Profitability and Earnings Performance

Profitability was weaker than the revenue performance because Colgate reinvested gross-margin gains in advertising and brand building. Gross margin expanded by about 100 basis points year on year to 70 per cent, above MOFSL's 69 per cent estimate, while gross profit increased 13 per cent.

Advertising expenditure rose 34 per cent year on year, other expenses increased 12 per cent and employee expenses rose 9 per cent. Consequently, EBITDA grew 7 per cent year on year to Rs 4.8 billion, below the Rs 5.0 billion estimate. EBITDA margin contracted 140 basis points to 30.1 per cent, compared with the broker's 32.1 per cent estimate.

PBT rose 8 per cent to Rs 4.7 billion, below the Rs 4.9 billion estimate. Adjusted PAT increased 8 per cent to Rs 3.5 billion, versus the Rs 3.6 billion estimate. Reported results included Rs 33 million of exceptional severance-related costs.

Premiumization and Brand Investment

Management said the toothpaste portfolio delivered robust high-single-digit volume growth, driven by strong premium-toothpaste performance and sustained growth in the core portfolio. The company accelerated brand investments to strengthen its oral-care premiumization strategy.

Product activity during the quarter included the launch of Colgate MaxFresh Berry Blast and the Colgate Total Active Prevention Foaming Clean Toothbrush. Colgate also ran a summer campaign for MaxFresh Peppermint Ice to reinforce its freshness proposition.

Earnings Estimates and Growth Outlook

MOFSL made no material changes to its FY27E or FY28E EPS estimates. Its revised financial estimates are as follows:

The broker models a revenue CAGR of 9 per cent and an EBITDA CAGR of 11 per cent over FY26-28E.

Key Trade-off

The near-term trade-off identified by MOFSL is that elevated advertising and premiumization spending can constrain operating margins, even as volume recovery, premium-portfolio growth and selective pricing support revenue growth.