Colgate Palmolive Q4FY23 results: Should you hold, sell or buy? here's what brokerages say

Colgate Palmolive India share price touched a new 52-week high of ₹1,713.00 apiece on BSE on Monday following the oral care manufacturers Q4FY23 numbers reported on Friday. Colgate Palmolive share price closed at ₹1,674.35, up by ₹48.05 or 2.95% on Monday.

The stock reaction was on the back of the company's better-than-anticipated performance in the March quarter, which exceeded market expectations. Due to a one-time tax reversal, the company announced on May 12 a 2.27% year-on-year (YoY) reduction in net profit for the quarter ending in March, falling to ₹316.22 crore.

For the quarter, the net profit increased by 8.5%, the company reported in an exchange statement, excluding the effects of a one-time tax reversal. It posted net sales of ₹1,341.7 crore in the fourth quarter of FY23, an increase of 3.7% from the same period the year before. Operating costs for the company were lower, at 942 crores as against 974 crores. The company's domestic revenues went up 5.4%.

Colgate Palmolive's Managing Director and CEO, Prabha Narasimhan, commented on the quarter's success by saying, “We are delighted with the sequential progress and outcomes of the quarter. The company has achieved domestic growth of 5.4%, with toothpaste achieving high single-digit growth despite the category's continued weak demand trends, particularly in rural areas.”

Let's take a look at the brokerage's comments and ratings.

Kotak Institutional Equities

The company reported a 1% YoY reduction in toothpaste volumes, in line with the category decline (2-3%), according to the brokerage report. According to management, the downturn in rural areas has slowed category growth, but trends are improving. The share of the naturals sector also appears to have reached a plateau. As the company delayed advertising and promotional expenditures in anticipation of the relaunch of ‘Strong Teeth’ in the first quarter, gross margin increased by 100 basis points quarter-on-quarter (QoQ) and EBITDA margin increased by 545 basis point QoQ.

“The new CEO is eyeing pick-up in volume growth, led by market development, science-backed premiumisation and building/scaling up personal care portfolio. We will closely track the initiatives and execution. We raise FY2024-25E EPS by 1-2%, roll over and revise fair value to Rs1,725 (Rs1,630 earlier) with ‘Add’ rating,” said the brokerage.

ICICI Direct Research

According to the brokerage's report, the expansion of the oral care sector has slowed, with penetration levels in both urban and rural areas approaching 100%. The company has lost market share over the past eight years as a result of the growth of natural and ayurvedic brands. In the past eight years, the market for toothpaste has seen a 30% increase in natural products. The company wants to increase consumption levels and restore market share by encouraging daily brushing in rural India and twice-day brushing in metropolitan areas.

In order to increase sales of personal care products, it would also be expanding the Palmolive brand into the bodywash area. Because it has the greatest gross margin among FMCG companies, the company is able to raise spending on advertising and promotions in order to spur growth.

“We believe successfully execution of category growth, expansion in personal care & premiumisation strategies would define long term growth for the company. We remain cautious on the growth outlook in the medium term. We maintain our ‘Hold’ rating on the stock with a revised target price of | 1560/share (| 1440/earlier),” said the brokerage.

Nuvama Institutional Equities

The company's Q4FY23 revenue (up 4% YoY), EBITDA (up 5% YoY), and PAT (down 2% YoY) came in ahead of its/consensus, according to the brokerage report. Although it increased 100bp quarter over quarter, gross margin remained unchanged year over year. Due in part to lower advertising expenditures, the company posted its highest quarterly EBITDA margin since Q4FY15 of 33.5%. In spite of the weak economy, toothpaste saw high single-digit growth, contributing to the domestic business' 5.4% YoY increase.

“We expect Colgate’s innovation funnel and brand investments to keep flowing. Toothpaste (muted since last few quarters), has started to see a decent recovery. However, we await market share gains with higher focus on naturals and non-oral care segment. Maintain ‘Hold/SU’ with a revised target price of ₹1,710,” said the brokerage.

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