Colgate Palmolive: Q4 Reviews Mixed, Shares Drop 6% in Two Sessions

On May 14, Colgate Palmolive India reported its earnings for the quarter ended March. The company posted a consolidated net profit of ₹379.82 crore marking a 20.11% increase compared to the same period last year. Total sales reached ₹1,480.66 crore reflecting a 10.35% rise from the year ago quarter.

Despite the positive earnings report Colgate Palmolive India share price was down 0.6 percent at ₹2,653.95 per share on the NSE at 9:30 am continuing the decline from the previous session.

Brokerage Insights

Nomura: The brokerage downgraded Colgate Palmolive India from neutral to reduce. Nomura highlighted the challenge of shifting consumer behavior in oral care which slows down growth. They expect volume growth to remain limited in FY25 due to high price increases and the prevalent use of neem sticks in rural areas. Nomura raised its price target to ₹2,450 from ₹1,425.

Motilal Oswal: The firm maintained a neutral rating with a target price of ₹2,500. They pointed out that FY25 will be crucial for Colgate especially regarding margin management. There’s a concern that prioritizing growth might lead to margin contraction as both gross and EBITDA margins are currently at unsustainable levels.

Jefferies: In contrast Jefferies had a more positive outlook praising Colgate Palmolive India for its solid performance including double digit revenue growth and record high operating margins. However, they noted the lack of clarity on the contribution of volume versus price/mix to the revenue growth. Jefferies maintained a buy call increasing the price target to ₹3,020 from ₹2,930.

Nuvama: Analysts at Nuvama Institutional Equities noted that margins remained strong due to cost saving initiatives like the Funding The Growth program. Colgate Palmolive has also partnered with the IPL to promote night time brushing. Rural sales are growing faster than urban sales, and the company is doing well in modern trade and e-commerce.

Colgate Palmolive India faces ongoing challenges particularly in rural markets where demand remains weak. The company’s strategy of raising prices more than inflation rates could further constrain volume growth.

The management highlighted several initiatives including a relaunch of Colgate Active Salt with a stronger formula and the introduction of a more affordable 80g pack for Colgate Total toothpaste. They also launched new fragrances for Palmolive body wash and rolled out their first mass media campaign. Additionally, Colgate Palmolive India announced a strong innovation pipeline starting with a unique Tooth Whitening Booster under the Visible White range.

Final Words

The Street remains divided on Colgate Palmolive India's prospects despite its strong financial performance in Q4. While some brokerages express caution due to market dynamics and margin concerns others remain optimistic about the company’s growth potential.