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  • 28 Jul 2022
  • ICICIdirect Research

COLGATE-PALMOLIVE POSTED Q1FY23 NUMBERS

COLPAL - 2719 Change: -12.90 (-0.47 %)

News: Colgate Q1FY23 results were below our estimate on all sales, operating profit & earnings front. Net sales witnessed mere 2.6% growth to Rs 1196.8 crore led by pricing growth. We believe steep commodity inflation has resulted in volume de-growth as the company has not tweaked prices of smaller SKUs but reduced grammage. The decline in volumes would have been more prominent in rural regions. Given elevated crude prices & subsequent increase in packaging cost, gross margin contracted by 213 bps. Overhead spends were up by 86 bps. Subsequently, operating profit declined by 8.3% to Rs 325.7 crore. Operating margins contracted by 325 bps to 27.2%. With dip in operating margins & exceptional expense of Rs9.3 crore (due to certain organisation structure changes), net profit witnessed a de-growth of 10.1% to Rs 209.7 crore. Adjusting for exceptional expense, net profit de-grew by 7.1% to Rs216.6 crore.

Views: High raw material inflation has not only adversely impacted margins for FMCG companies but it has also slowed down demand conditions in rural & semi-urban regions as consumers are down trading towards smaller SKUs & economy brands. Moreover, oral care is saturated category with 95% penetration & slower rate of habit change of brushing twice a day is also resulting in muted growth in the category. In last one decade, Ayurveda & naturals oral care sub-category is growing faster than white toothpaste & the company is trying to increase its market share in the space with Colgate Ved-Shakti Brand. However, we believe the company is required to aggressively expand its footprint in personal care category with new launches & higher marketing spends. Colgate has strong distribution network & it can leverage it to expand personal care product portfolio.

Impact: Neutral.