Mumbai: Colgate-Palmolive (India) Ltd said on Monday that net profit rose 8.43% in the quarter to June, falling short of analysts’ expectations.
However this did not deter investors from buying the stock, which closed 6.19% higher on Monday. One of the reasons for this is the return of volume growth at 6%, which was better than that seen in the past two quarters. Besides, the prospects of volume growth improving going forward as consumption rebounds look bright.
Net profit increased to Rs.125.72 crore in the April-June quarter, from Rs.115.94 crore a year ago. Revenue rose 12.49% to Rs.1,141.54 crore, from Rs.1,014.72 crore a year ago.
A Bloomberg poll of analysts had estimated net profit at Rs.139.60 crore and net sales at Rs.1,092.70 crore.
“Even though the overall earnings were not that great, the volume growth number at 6% was much better than that seen in the past three quarters (1% in the December quarter and 4% in the March quarter), which is a positive,” said Sachin Bobade, analyst at brokerage Dolat Capital, while explaining that given the good monsoon and Seventh Pay Commission payouts, there is no reason why volume growth cannot go back to double digits.
Moreover, the company is also taking on its competition. During the quarter, it strengthened its portfolio in the natural segment with two launches—Colgate Sensitive Clove and Colgate Cibaca Vedshakti—as rivals such as Pantajali Ayurved Ltd have in the past couple of quarters taken away some of its market share.
“Heightened competitive intensity, especially from Patanjali, saw Colgate toothpaste market share decline marginally in the past quarter. Colgate has gained some market share back in this quarter,” said a report by Emkay Research.
It has improved its market share in the toothpaste category in June by 60 basis points (bps) to 55.9% from 55.3% in the preceding quarter. In the toothbrush category, Colgate has grown its market share to 46.8% in June, an improvement of 100 bps from 45.8% in March. One basis point is one-hundredth of a percentage point.
To be sure, the increase in sales for the Indian unit of New York-headquartered Colgate-Palmolive Co. has come at the expense of increased advertising costs. Operating profit margin declined 100 bps to 20.9% during the June quarter, impacted by higher advertisement spends, which, as a percentage of sales, were at 15.4%, up 190 bps over the year-ago period.
“At Colgate, we are always striving to customize our innovations to meet the consumer’s need. The stream of innovations launched by the company during this quarter echo our sustained promise to growing the oral care category by building new segments based on consumer insights, our years of experience, advanced technology and progressive products,” said Issam Bachaalani, managing director at Colgate-Palmolive, in a statement.
During the quarter, the firm announced a voluntary retirement scheme (VRS) for employees at the tooth powder manufacturing facility at Waluj, Aurangabad. The scheme was accepted on 4 May by all eligible employees. After the acceptance of the offer, the tooth powder manufacturing operations at Aurangabad were discontinued. It entailed a VRS expense of Rs.29.26 crore and Rs.2.08 crore towards closing down the unit.
Colgate-Palmolive shares rose 6.19% on Monday while the benchmark Sensex gained 0.37% to 28,182.57 points.