Colgate Palmolive investors have little reason to smile

Higher spending on promotional activities led to revenue growth of 5% in the September quarter with nearly 4% year-over-year (YoY) growth.

Gross margin fell 130 basis points (bps), impacted by higher input prices and lower price hikes. One basis point is one hundredth of a percentile. Ebitda margin declined 220 bps to 30%, impacted by higher employee spending and advertising spend. Ebitda is short for earnings before interest, taxes, depreciation and amortization. Analysts cautioned that input cost inflation remains a major risk for the company due to rising crude oil and crude derivatives prices. Consequently, investors in this stock should be prepared for a fall in operating margin of around 120-140 bps in FY22.

Furthermore, on a two-year CAGR basis, revenue growth was around 5.2%, note analysts. CAGR is short for Compound Annual Growth Rate.

Analysts at Motilal Oswal Financial Services Ltd said, “Two-year average sales growth, at 5.2% in Q2FY22, has remained in the range of 4-6% seen in recent quarters, with plenty of improvement despite consistent ad spend. There are fewer signs.” in a report. With the launch of the non-oral care portfolio, and investments under the ‘Brush to the Day’ campaign seem to be on the back burner, Colgate is unlikely to return to double-digit sales growth anytime in FY 2008-15, has been added to the report. .

It is to be noted that Colgate has stepped up its aggressiveness and innovation efforts with differentiated products and natural range. However, these steps are yet to improve the growth trend. Therefore, it will take time to allay the concerns about regaining the lost market share in the oral care segment.

No wonder, then, that despite the stock’s comparatively cheap valuation, analysts are hardly enthusiastic about it. On a one-year forward price-to-earnings basis, the stock is trading at a valuation multiple of about 38 times, which is much lower than its peers.

“Following the recent correction, while the risk-reward looks more favourable, there are near-term margin concerns. Thus we will look forward to a better operating environment and be more constructive when we see signs of sustainable improvement as well as volume growth. will also see better momentum in the toothpaste market share on a full year basis,” analysts at Nirmal Bang Securities Ltd said in a report.

Meanwhile, in the backdrop of these factors, the stock’s performance has been disappointing, to say the least. In the past one year, the company’s shares have risen just 5%, much lower than the benchmark index Nifty 50, which is up 54% in the same period. In fact, in the last five years too, this trend has remained with Nifty giving more than double returns than Colgate.