Colgate-Palmolive down as Q2 volume growth disappoints

Colgate-Palmolive (India) shares gained over a percent in the early trade but gave up the gains to sink into the red on October 27. The oral care company registered a 22.3 percent year-on-year growth in profit at Rs 340 crore in the September quarter but its volume growth was a major miss.

The profit was driven by better-than-expected EBITDA margins aided by pricing and efficiencies. Revenue from operations grew 6 percent year-on-year to Rs 1,471 crore but was below analysts’ expectations. The company’s volumes were flat against analysts’ expectations of mid-single-digit growth.

The board declared the first interim dividend of Rs 22 per share for the current fiscal.

As of 9.59 a.m, Colgate-Palmolive (India) was trading at Rs 2,018 apiece on the NSE, down 0.81 percent from the previous close.

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The company focussed on intensifying its efforts on the Colgate Strong Teeth relaunch, extending its reach and enhancing product availability, which was further supported by an impressive performance of Colgate Max Fresh, Nuvama Institutional Equities said.

It also restaged its largest toothbrush franchise, Colgate Zig Zag with a superior mix that focused on its core equity of deep, interdental cleaning.

The company’s growth was entirely led by product price hikes taken in the past year, with underlying volumes flattish to slight negative, global brokerage Jefferies said.

This is broadly in-line with most peers who have seen muted growth in the September quarter but helped by pricing power, value growth is better than peers like HUL, it said.

Outlook

Colgate continues to drive up its gross margin, led by a cooling-off in inflation and product price hikes which have been largely retained. “GM improved for the fourth straight quarter, up 40 bps sequentially to 68.6 percent, better than estimates and nearly 400 bps above pre-Covid levels,” Jefferies said, maintaining its “buy” call on the stock.

Emkay Global and CLSA, however, retained their “sell” calls. Colgate-Palmolive India’s revenue growth of 6 percent missed their estimates on flat volume growth. CLSA said the outlook was unclear but the pricing-led growth left the door ajar for competition.

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