Colgate Palmolive surges 5% despite weak Q4 results; here's why

Shares of FMCG major Colgate Palmolive surged as much as 5.3% to hit a 52-week high of ₹1,713 apiece despite a decline in its net profit in the March quarter. On Monday, the scrip opened lower at ₹1,600.10 on the BSE as against the closing price of the previous session at ₹1,626.30. At 12:48 pm, the company's shares surged 3.92% at ₹1,690.05. The company's market capitalisation stood at ₹45,991 crore during the session on Monday, with 31,332 shares exchanging hands on the BSE, higher than the two-week average of 5,740. At present, the shares of Colgate Palmolive are trading 19.4% lower than the 52-week low of ₹1,434.60, which the company touched on January 30, 2023.

In the March quarter, the company's net profit declined by 2.2% to ₹316.2 crore as against ₹323.5 crore in the same period last year. The company's revenue from operations stood at ₹1,341.69 crore during the quarter under review, thus witnessing a growth of 3.7%. The company's revenue stood at ₹1,293.3 crore in the March quarter last year. The company's EBITDA (earnings before interest, taxes, depreciation and amortization) surged by 5.2% YoY to ₹451.9 crore.

However, on a sequential basis, the company's net profit was up 42.3% quarter-on-quarter (QoQ) as against ₹243.2 crore in the December quarter. The company's revenue from operations surged 4.7% QoQ during the quarter under review, as against ₹1.281.2 crore in the December quarter. Sales for the March quarter increased by 3.7%, whereas for FY23, the sales were up 2.4%. The company has declared a second interim dividend of ₹21/-per share aggregating to ₹571.1 crore, which will be paid from June 8, 2023. In November last year, the company's board had earlier declared the first interim dividend of ₹18 per share.

Analysts believe that despite a dismal performance in the March quarter, the company will continue to gain momentum in sales and profit in the upcoming quarters. Analysts at HDFC Securities says that Colgate continues to focus on the increase in per capita consumption (particularly in rural where 55% of households don't brush daily) and premiumising through science-based innovation, and building personal care.

The brokerage firm maintains an 'ADD' rating for the FMCG major with a target price of ₹1,700. "Advertisement expenses fell 3% YoY (10.6% of sales), but these are likely to inch up in the coming quarter with the re-launch of CDC. We model 6% revenue growth for FY23-25, with the EBITDA margin expected to hover at +30%," HDFC Securities says in a note.

Meanwhile, according to analysts at ICICI Securities,"relaunches, media spend and sampling is likely to set the stage for volume growth" in the coming quarters.

"Rural continues to underperform and pose material challenges in driving category growth potential (55% rural households don't brush daily). However, given the continued saturation in the market share of naturals (since 2019), we expect Colgate to be the likely beneficiary of this trend. In this regard, its focus to accelerate investment towards core (Colgate Strong Teeth, Max Fresh and Salt) through re-launches, media spend (2x in core vs others) and sampling is likely to set stage for volume growth," a note by ICICI Securities says.

"In non-oral segment, revenue performance has been underwhelming. Incremental efforts to drive premiumization (in both toothbrush and toothpaste) look promising, albeit not free of challenges. Diversification in personal care by leveraging Palmolive brand equity in body wash segment will be dependent on category and distribution nuances. Improvement in operating profit margins is likely to be reinvested in promoting the core," it adds.

The brokerage firm models the company's revenue, EBITDA and PAT to grow at a CAGR of 8%, 9% and 9% respectively over FY23-25E. ICICI Securities maintains an 'ADD rating for the FMCG major, with a revised target price of ₹1,750.

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