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Colgate Palmolive India: Should investors buy, sell, or hold after Q3 results?

Colgate Palmolive India: Should investors buy, sell, or hold after Q3 results?

Colgate Palmolive India: Should investors buy, sell, or hold after Q3 results?
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By Yashi Gupta  Jan 28, 2022 2:46:22 PM IST (Published)

Colgate Palmolive India reported a 1.6 percent surge in net profit to Rs 252 crore as against the net profit of Rs 248 crore for the same quarter in the previous fiscal. Its net sales for the nine months ended Decmber 31 came in at Rs 3,773 crore, rising over 7 percent over the same period of the previous fiscal. In response, Colgate's shares surged as much as 1 percent. What should investors do with the shares now? Buy, sell, or hold? Here's what brokerages are saying

Colgate Palmolive India shares rose as much as 1 percent on Friday after the company reported a 1.6 percent surge in net profit in its third-quarter earnings. As per an exchange filing, the company's net profit after tax was Rs 252 crore as against the net profit of Rs 248 crore for the same quarter in the previous fiscal.

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Colgate's net sales grew over 4 percent for the quarter under consideration to Rs 1,271 crore. Its net sales for the nine months ended December 31 came in at Rs 3,773 crore, rising over 7 percent over the same period of the previous fiscal.
"Despite the macro challenges, our growth remains strong, consistent and driving the right balance between volume and revenue growth. Brand penetration strengthening reflects continued consumer trust in our brands," Ram Raghavan, MD of Colgate-Palmolive India said.
As the scrip currently trades 0.7 percent higher at Rs 1,405, what should investors do with it? Here's what brokerages say:


CLSA on Colgate
Call: Outperform | Target price: Rs 1,540 
Though its results were marginally below CLSA's expectations, the brokerage expects Colgate to give better returns than the average market considering a volume growth of 3 percent and price growth of 1 percent. The brokerage, however, added the company faces multiple headwinds and that its earnings visibility remains weak. It said the 2-3 percent price hike in November 2021 was absorbed due to an increase in promotions this year as compared to the previous year.
Nomura on Colgate
Call: Neutral | Target price: Rs 1,700 
Nomura is "neutral" on Colgate considering its anaemic growth and that the pressure can sustain due to weak rural demand. Its gross margin slipped to 66.6 percent on elevated input costs and lower effective pricing. But the company is maintaining an elevated pace of innovations with new product and sub-category launches, it said.
In the oral care segment, Colgate launched Gum Expert, an advanced toothpaste. It entered the face cleansing category, featuring products like face foams, masques, and scrubs. It also launched Colgate RecyClean, one of its kind toothbrushes with bristles derived from plant and BPA free, and made using 100 percent recycled plastic, the company said in a press release.
The company expects to continue a strong innovation pipeline, "with new initiatives launched this quarter," Colgate added.
Nomura said the company is entering a low-growth period with the absence of any sustainable triggers. And while the valuations of the company is inexpensive, the unexciting earnings growth can limit stock upside, the brokerage added.


Jefferies on Colgate
Call: Buy | Target price: Rs Rs 1,700
Jefferies said the company's revenue growth is in-line with its estimates. However, despite product price hikes, its realisation growth is weak even as volume growth is at 3 percent. The brokerage said the company's gross margin has started to stabilise despite severe pressures. "A pick-up in growth is critical for share price performance," it added.
ICICI Securities on Colgate
Call: Add | Target price: Rs 1,550
ICICI Securities has cut its earnings estimates by 2 percent for FY23. It has maintained an "add" rating but cut the target price from Rs 1,600 to Rs 1,550 saying "key downside risk is lower-than-expected market share gains."
The brokerage said the revenue growth of 3.9 percent YoY is "underwhelming," but not "unexpected". Furthermore, its gross margin pressure and weak growth led to EBITDA margin falling below 30 percent, despite a significant cut in ad-spends.
Yes Securities on Colgate
Call: Add | Target price: Rs 1,584
Yes Securities has downgraded the stock from "buy" to "add" as lower growth and inflation-led concerns on margins is expected to delay the earnings growth trajectory.
It said, with management indicating its endeavour to maintain a balance between volume and price growth, "we expect a gradual improvement in volume albeit at a slower pace than expected."
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