Shares of Colgate Palmolive (India) Ltd have fallen over 5% in the past one year, in contrast to the 9% appreciation in its regional index, Nifty FMCG (Fast-Moving Consumer Goods). The company’s declining market share and sluggish growth have been a cause for concern.
In the March quarter (Q4FY22), the company posted a modest 1.4% year-on-year (YoY) growth in operating revenue 1,301 crores. In a post earnings call, the company’s management said it raised prices in the mid-single digits in Q4, implying a decline in volumes in the low to mid-single digit range.
Gross margin declined 84 basis points (bps) year-on-year to 66.8% on account of raw material inflation. One basis point is one hundredth of a percentile. However, cost control measures meant flattening the Ebitda (earnings before interest, taxes, depreciation and amortization) margins at 33%. For perspective, employee spending and advertising costs, as a percentage of sales, fell 60bps and 32bps year-over-year, respectively.
Management said inflation has weighed on consumer sentiment, especially in rural areas. The share of the natural segment in the oral care segment has stabilized. Also, the high entry levels in this category provide minimal scope for growth.
“In our view, structural growth acceleration will lead to increased rural access and brushing twice in urban markets, innovation in the oral care as well as personal care sector, premiumization in alternative channels, and the promotion of rural distribution and scale-up in the chemist channel. Depends on the ups,” said analysts at Kotak Institutional Equities in a report on May 27.
The company has a strong pipeline of product launches and re-launches. That would mean increased advertising costs to support it. So, it remains to be seen whether such a launch will help boost its revenue.
Also, investors will be closely monitoring strategic changes Under the new chief executive officer (CEO). The company has named Prabha Narasimhan as its new Managing Director and CEO with effect from September 1.
“The core issue of lack of sales growth (due to high range penetration, especially when combined with the fact that Colgate has shown no signs of regaining the lost market share), will continue to delay the stock revaluation . This is especially with little sign of a turnaround from reliance on oral care, analysts at Motilal Oswal Financial Services said in a report on May 26.