Colgate revenue growth remains strong as advertising spend pressures 2QFY27 margins

Investment View and Valuation

In its October 22, 2026 results update on Colgate, Motilal Oswal Financial Services retained its Buy rating and Rs 2,000 target price. The broker expects revenue momentum to remain intact, supported by healthy volume growth, brand-building investments and premiumisation-led portfolio mix. However, elevated advertising expenditure could weigh on near-term margins.

The target price is based on 30 times September 2028E EPS.

2QFY27 Financial Performance

Colgate reported 12 per cent YoY revenue growth in 2QFY27 to Rs 17.1 billion, broadly in line with Motilal Oswal's estimate of Rs 17.2 billion. This was the second consecutive quarter of double-digit revenue growth after six quarters of muted growth, although the comparison was against a soft base of negative 6 per cent growth in 2QFY26.

Volume growth was high single digit, estimated at 8 per cent, and was broad-based across brands and distribution channels. The toothpaste portfolio delivered high-single-digit volume growth, led by the premium toothpaste range and Colgate MaxFresh.

Gross margin expanded 40 basis points YoY to 69.9 per cent, above the broker's 69.5 per cent estimate, and gross profit increased 13 per cent YoY. However, advertising spending rose 40 per cent YoY as Colgate continued to invest in brand building and premiumisation. Other expenses rose 9 per cent and employee costs increased 15 per cent.

Consequently, EBITDA grew only 2 per cent YoY to Rs 4.7 billion, below Motilal Oswal's Rs 5.2 billion estimate. EBITDA margin contracted 290 basis points YoY to 27.8 per cent against the broker's 30.3 per cent estimate. PBT rose 4 per cent YoY to Rs 4.6 billion versus the Rs 5.0 billion estimate, while adjusted PAT increased 4 per cent YoY to Rs 3.4 billion against the Rs 3.8 billion estimate. In 1HFY27, revenue, EBITDA and adjusted PAT grew 12 per cent, 4 per cent and 6 per cent, respectively.

Management Commentary and Strategic Priorities

Management said it aims to deliver volume-led balanced growth through calibrated pricing, continued brand investment and premiumisation. It intends to manage commodity-cost fluctuations through disciplined cost savings and pricing actions.

Management expects robust growth to be supported by its science-backed product portfolio and strategic advertising investment. The board declared a first interim FY27 dividend of Rs 24 per equity share.

Manish Anandani became Managing Director and CEO effective September 28, 2026. Motilal Oswal said it will monitor strategic priorities and execution under his leadership.

Earnings Outlook and Estimates

Motilal Oswal models revenue CAGR of 7 per cent and EBITDA CAGR of 10 per cent over FY27 to FY29E. Its revenue estimates and projected EBITDA margins are as follows:

The broker described changes to FY27 and FY28 EPS estimates as not material. However, revised FY27E EBITDA and PAT estimates were lowered by 2.6 per cent and 2.2 per cent, respectively, while FY28E EBITDA and PAT estimates were lowered by 1.2 per cent and 0.8 per cent, respectively.

Key Factors to Monitor

• Persistence of healthy toothpaste volume growth.
• Benefits from premiumisation and brand investment.
• Management of commodity costs through cost savings and pricing actions.
• Advertising-led pressure on margins.
• Strategic priorities and execution under the new CEO.