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  • 21 Oct 2022
  • ICICIdirect Research

VOLUME GROWTH STILL MISSING FOR COLGATE; CAUTIOUS OUTLOOK

COLPAL - 2849 Change: 44.95 (1.60 %)

News:

 Colgate’s saw muted sales growth of 2.6% to Rs1387.5 crore largely driven by pricing growth. We estimate volumes would have de-grown during the quarter given most of the FMCG companies were holding high cost raw material inventory. The correction in commodity inflation would be reflected in price cuts & grammage increase from Q3FY23 onwards. Gross margins contracted by 308 bps considering company was holding high cost inventory of crude based packaging material during the quarter. The company has reduced its advertisement spends by 230 bps (% to sales) to safeguard dip in operating margin. Employee spend as well were down by 93 bps (% of sales) during the quarter. Operating profit grew by 1.8% to Rs408 crore & operating margins contracted by 23 bps to 29.4%. Led by stable operating profit, net profit grew by 3.3% to Rs278 crore.

View:

 Oral care category is saturated with more than 90% of the penetration in both rural & urban regions. Moreover, the scope for increasing consumption is limited given change of habit of brushing twice a day takes almost a generation to percolate into larger per capita consumption. It is important to know that only ~20% of Indian brush twice a day. The oral care category has also started to dominate by host of Ayurveda & Natural brands where Dabur as well as Patanjali Ayurveda has taken a lead in last decade. Though, the company is increasing its presence in naturals space through ‘Colgate Ved-Shakti’, it is yet to reflect in market share gains. We also believe the company is required to increase its addressable market by expanding its presence in personal care categories. Though, the company command strong gross as well as operating margins, we remain cautious on growth prospects.

 

Impact:

Neutral.