On Wednesday, Elara Securities India adjusted its stance on Colgate-Palmolive (NYSE:CL) India (CLGT:IN), downgrading the stock from "Accumulate" to "Reduce," while maintaining a price target of INR 2,675.00. This decision follows a period during which the company's stock experienced a 9% increase over the past three months.
Colgate-Palmolive India reported a 10.4% year-over-year increase in Q4 revenue to INR 14.8 billion, which was 2% higher than Elara Securities' estimates. The growth was primarily driven by a 10.7% rise in domestic sales, with toothpaste sales showing robust growth. The company is expected to see a 4% volume growth in its domestic business for Q4 FY24E.
For the entire fiscal year of FY24, Colgate-Palmolive India's domestic sales went up by 9.5%, spurred by double-digit growth in the toothpaste segment. The company's strategic initiatives to promote consumption and premiumization have been credited for this performance.
Notably, rural sales growth outpaced urban growth by 200 basis points in Q4, which was attributed to increased rural consumption and a renewed focus on the Colgate Strong Teeth brand.
Colgate-Palmolive India is aiming to enhance the consumption of under-indexed toothpaste, which is currently at 0.6 times that of the Philippines. The company plans to leverage its flagship brands and refreshed communication strategies to achieve this goal.
Despite these positive developments, Elara Securities has revised its earnings forecast slightly downward by 0.6% for FY25E and by 0.9% for FY26E, taking into account a projected lower margin.
The firm acknowledged the management's efforts to drive consumption and premiumization; however, the recent steep valuation of the stock prompted the downgrade to a "Reduce" rating. The price target is based on a 45x FY26E P/E multiple.
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