Earnings Outlook
Slowdown in urban demand to impact Colgate India sales
This story was originally published at 22:19 IST on 24 January 2025
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By Noopur Bhandiwad
MUMBAI – Colgate-Palmolive (India) Ltd.'s sales growth in the December quarter is likely to be muted given a slowdown in urban demand, with volumes expected to rise 3-5% backed by premium products, analysts said. Apart from the weak growth in demand, high advertising and promotion costs this quarter are likely to hit its profitability as well.
Colgate-Palmolive is expected to report a net profit of INR 3.33 billion for the December quarter, up only 1% on year, as per an average of estimates from 16 brokerages. At the same time, the company's revenue may rise nearly 7% on year to INR 14.88 billion. Post the September quarter earnings, the company had raised concern around the slowdown in urban demand and even indicated that the rural growth has peaked, which likely played out this quarter as the company's earnings may fall sequentially. Its net profit may decline 16% from the September quarter and revenue may decline over 8%.
Among the brokerages, KR Chocksey Research had the highest estimate for net profit at INR 3.69 billion, while Elara Securities had the lowest estimate at INR 3.13 billion. For revenue, the highest estimate was from HDFC Securities at INR 15.28 billion and the lowest was from Elara Securities at INR 14.35 billion. Shares of Colgate India have fallen around 9% from the day it announced the September quarter earnings. The stock is down almost 30% from its lifetime high touched on Sept. 30, closing at INR 2,751.90 on Friday. The company will report its quarterly earnings on Tuesday.
Sales in rural areas are expected to lift volumes and sales in urban areas may be driven by premiumisation and consumption growth strategies, Centrum Broking said. "Our channel check indicates that its toothbrushes have been experiencing faster growth in selective areas than toothpastes due to the company's focus on driving distribution," the brokerage said. The company's premium portfolio continues to outperform its core portfolio, which is showing lower growth, Prabhudas Lilladher said.
Higher advertising and promotion costs continued to impact margins, with brokerages expecting the earnings before interest, taxes, depreciation, and amortisation margin to decline in the range of 17-276 basis points and the gross margin to fall between 120 and 299 bps on a yearly basis. "Margins may contract due to high raw material costs, advertising spends, and costs of oral health campaigns", Systematix Institutional Equities said.
According to three brokerages, gross margins will fall due to the impact of a high base. Kotak Institutional Equities estimates advertising and promotion costs to constitute 14% of sales. "Net-net, we expect EBITDA margin at 31.5%, down 205 bps on year and EBITDA to decline marginally on a year-on-year basis," Kotak Equities said. The company's EBITDA is expected to come at INR 4.68 billion, according to average of estimates by 15 brokerages.
On the product-mix front, many analysts expect the company to accelerate its focus on innovation and new launches. Nuvama Institutional Equities expects brands such as Colgate Strong Teeth, Colgate Total, and Colgate Visible White to do well. Kotak Equities said the company is aggressive about Palmolive as it is likely to grow much faster than oral care.
Following are the Oct-Dec earnings estimates for Colgate India based on reports compiled from 16 brokerage houses in descending order by the estimate of net profit (in million rupees):
| Brokerage firm | Net sales | Net profit | EBITDA |
| KR Choksey Research Ltd. | 15,214 | 3,692 | 5,079 |
| Motilal Oswal Financial Services Ltd. | 14,934 | 3,515 | 4,893 |
| Nirmal Bang Equities Pvt Ltd. | 15,079 | 3,447 | 4,838 |
| Centrum Broking Ltd. | 14,765 | 3,408 | 4,607 |
| YES Securities (India) Ltd. | 15,063 | 3,379 | 4,776 |
| HDFC Securities Ltd. | 15,284 | 3,377 | 4,774 |
| Nuvama Wealth Management Ltd. | 14,935 | 3,365 | 4,734 |
| Sharekhan Ltd. | 15,090 | 3,360 | |
| Kotak Institutional Equities | 14,728 | 3,333 | 4,639 |
| JM Financial Institutional Securities Pvt Ltd. | 14,848 | 3,276 | 4,663 |
| Axis Securities Ltd. | 14,710 | 3,260 | 4,640 |
| Emkay Global Financial Services Ltd. | 14,798 | 3,214 | 4,543 |
| Prabhudas Lilladher Pvt Ltd. | 15,029 | 3,214 | 4,606 |
| Systematix Shares and Stocks (India) Ltd. | 14,808 | 3,187 | 4,562 |
| Nomura Equity Research | 14,420 | 3,171 | 4,497 |
| Elara Securities (India) Pvt Ltd. | 14,350 | 3,132 | 4,345 |
| Average | 14.878 | 3,333 | 4,680 |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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