Colgate-Palmolive (India) Limited, which is present in Oral Care category, has been unable to revive the growth in its revenue and sales volume for a while now. This trend continued in the December quarter (Q3FY23) as well as expectations were measured.
Total operating revenue growth year-on-year (YoY) stood at approximately 1% 1,291 crores. The company has not disclosed data on volume performance. However, analysts expect a decline of 2-3% year-on-year in Q3. “For the fourth consecutive quarter, Colgate reported a decline in volumes and results that were weaker than expected,” said a January 24 report by Jefferies India.
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Colgate said oral care consumption was adversely impacted by macro factors in the last quarter. Gross margin increased sequentially, but fell 77 basis points compared to the same period last year. One basis point is 0.01%. But the decline in earnings before interest, tax, depreciation and amortization (Ebitda) margin was 174 bps YoY to 28%. The EBITDA performance was primarily impacted by higher advertising expenses. However, it can ultimately be beneficial as it can accelerate growth.
In such a situation, there are high expectations from Prabha Narasimhan, the new Managing Director and Chief Executive Officer of Colgate. In a meeting with analysts last month, Narasimhan had said that his main focus would be to increase sales volumes. The penetration of the oral care category is high. Therefore, volume growth can come through higher frequency of brushing. “Premiumisation in oral care and building a personal care portfolio is also a priority. While this is an uphill task that requires patience, we still think Colgate needs more aggression,” said analysts at Jefferies.
Of course, execution is the key now and investors will be following closely.
Meanwhile, shares of Colgate have declined nearly 3% since the announcement of its third-quarter results. Keeping this in mind, the stock is up just 2.4% over the last year, which is nothing to write about. The stock trades at around 35 times estimated earnings for FY24. Bloomberg view the base material.
While valuations look cheap compared to other consumer companies, there appears to be limited room for a sharp upside move, at least in the near term. Announcing its third quarter results, Hindustan Unilever said it is expecting a revival in rural demand. The rural recovery augurs well for Colgate as it has wide exposure in the market.
That being said, investors can wait for strong signs of pick-up in volumes and revenue growth.
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