Colgate-Palmolive’s 17 per cent drop in profit and 6 per cent fall in sales in Q2 triggered downward revisions in earnings estimates, triggering mixed views from analysts.
Anlaysts noted Colgate’s performance has been relatively weak over the past 4-5 quarters, marked by muted revenue growth and margin contraction. Analysts said the sustained management thrust protecting Colgate’s elevated margin has a bearing on its topline performance. They also see limited room available for margin expansion from hereon, as further any action to enhance margin will impact volume growth.
The reduction in the GST rate on the entire oral care portfolio from 18 per cent to 5 per cent, which benefitted nearly 95 per cent of the company’s portfolio, mreanwhile, is seen making Colgate well-positioned for a recovery in the coming quarters, supported by improving demand trends.
“The stock has corrected 30 per cent over the past 12 months and is trading at a comfortable valuation of 45x and 40 times P/E for FY26 and FY27, respectively. We maintain BUY rating on the stock with a target price of Rs 2,850 (45x Sep’27),” MOFSL said.
Emkay said its key concerns about a single-category company with elevated margin levels have been largely at play, with Colgate India dealing with competitive stress and macro hiccups in its topline performance.
“The GST cut, though, is likely to help demand with affordability; however, we see the benefit to be limited for Colgate, as premiumisation and a ‘twice brushing’ habit will call for high media spending and innovations ahead (most launches in place). Additionally, it will lose out on some of the input tax credit. We maintain SELL on Colgate while lowering Sep-26E target to Rs 2,000, on 35 times P/E,” Emkay Global said.
Given the likely weak earnings growth of 2.2 oer cent CAGR between FY25 and FY27, valuations are fair at 45.4 times FY27E EPS, said Nirmal Bang Institutional Equities.
“We maintain our target multiples at 42 times (in line with the 5-year and 10-year range of 41-43 times). We are valuing the company on Sep-27E EPS resulting in a target of Rs 2,400 (vs Rs 2,390 earlier). We maintain a HOLD rating on the stock,” Nirmal Bang said.
Nuvama said Colgate offers valuation comfort, but it needs to navigate margin pressures stemming from an inverted duty structure in Q3 and competitive intensity. We are, hence, cutting FY27E/28E EPS by 8.5 per cent/2.7 per cent, yielding a target of Rs 2,870 (earlier Rs 3,135); retain ‘BUY’,” it said.