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Analysts expect Colgate Palmolive's near term growth to remain sluggish

Analysts expect Colgate-Palmolive's near-term growth to remain sluggish

Analysts expect Colgate-Palmolive's near-term growth to remain sluggish
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By Asmita Pant  Jan 25, 2023 4:16:35 PM IST (Published)

The domestic business grew with decline in volume. Higher A&P spend keeps margin in check. CLSA stated that stable market share is comforting but category volume decline is concerning.

The consumer goods company Colgate-Palmolive reported its December quarter earnings on Tuesday, January 24. The company failed to beat street expectations and all metrics came below estimates. Colgate reported a profit of Rs 243.2 crore for the quarter ender review, 8.2 percent below estimates. The company reported a profit of Rs 252.3 crore in the corresponding quarter in the previous year.

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Colgate's ad spends during the quarter under review came at Rs 169.9 crore against Rs 158.2 crore in the previous quarter. In the quarter ended December 2021, the ad spends came at Rs 150.9 crore.

The brokerage firm CLSA has given an underperform rating on the shares of the company with a target price of Rs 1,525 per share. According to CLSA, lower margin drove the earnings miss. The domestic business grew with decline in volume. Higher A&P spend keeps margin in check. CLSA stated that stable market share is comforting but category volume decline is concerning.
Nomura gave a neutral rating on the company with a target price of Rs 1,550 per share. The firm noted that execution of new strategy is the key for the company. Higher investments and execution will be key to company's four-pillar growth strategy.
Axis Securities downgraded the rating to hold with a target price of Rs 1,550. The brokerage praised company’s growth through initiatives such as launching science-based premium products to drive overall realisations, category development by driving awareness through marketing initiatives, increasing frequency of consumption and penetration in rural, and expanding personal care portfolio to derisk from slow growing oral care category.
However, Axis Sec said that the strategy would have a long gestation period and would require consistent investment in the arena of market development (higher marketing and ad-spends) which will put pressure on the company’s bottom line in the near term.
Motilal Oswal does not expect earnings growth to resume strongly over the medium term and maintained a neutral call with a target price of Rs 1,565. The brokerage said, "While initiatives for growth under the new CEO are welcoming, we do not see any material change in business prospects over the near to medium term." Motilal Oswal said that the weak revenue and earnings growth is likely to sustain going forward and hence no re-rating of the stock with a two-year earnings CAGR of nearly 12 percent.
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