Colgate Palmolive (India) Ltd’s impressive June quarter (Q1FY24) results have been well received by investors, prompting a 6% surge in share prices in Thursday’s early trade and reaching a new 52-week pinnacle of ₹2009.90 per share.
Performance outshone expectations, with both revenue and margins surpassing forecasts. The company’s gross margin reached a multi-quarter high of 68.4% in Q1, reflecting a year-on-year expansion of 211 basis points (bps). Ebitda (earnings before interest, tax, depreciation, and amortization) margin also swelled by 440 bps year-on-year to 31.6%, even as the company allocated part of these gains to advertising and promotions.
Colgate’s operating revenue also witnessed a substantial rise of 10.6% year-on-year, reaching ₹1,324 crore, overshooting analyst expectations of a 7-8% growth. The upswing was primarily driven by its domestic business, with toothpaste sales marking a high double-digit growth. Consequently, the company’s Q1 revenue growth has been the highest in the last eight quarters. It’s worth noting that competitors, Hindustan Unilever Ltd and Dabur India Ltd, also performed commendably in the oral care category in Q1.
Colgate’s revenue growth last quarter was led by price and volume. “Underlying volumes grew mid-single digits (estimate), which is still the highest in the last two years. We note that this was on a soft base (3-4% decline) and two-year volume CAGR remains soft at about 1%,” said analysts at Jefferies India in a report on 26 July.
Encouragingly, Colgate is witnessing early recovery signs in rural markets and remains optimistic about ongoing improvements. As such, analysts have revised their earnings estimates for the company. Kotak Institutional Equities analysts, in their 27 July report, said, “We raise FY2024-26E earnings per share by 6-7% as we increase revenues by approximately 2% and margins by about 135 bps.”
“Even as the oral care category growth seems to be reviving, we believe it is fundamentally a 6-8% value growth category, and hence further re-rating of Colgate calls for share gain/premiumization-led higher growth and/or progress in the personal care portfolio (Palmolive),” the broking firm added.
Shares of Colgate have risen by about 30% in 2023 so far and further gains would be driven by an improving earnings trajectory. “Colgate offers good earning visibility in the near-term though we would like to see aggression on growth in the medium term,” said the Jefferies report.
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Updated: 27 Jul 2023, 12:46 PM IST