Home >Markets >Mark To Market >Colgate’s fourth-quarter results offer little reason to smile for investors

Nobody expected the moon from Colgate-Palmolive (India) Ltd’s March quarter results. Expectations were muted to begin with, but the oral care products’ company even fell short of the toned-down expectations.

The impact of the coronavirus-led disruption is evident in the numbers. The company’s revenue declined by 7% year-on-year to 1,071 crore. A Bloomberg poll of analysts had pegged the company’s revenue at 1,139 crore.

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Graphic: Satish Kumar/Mint

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For the March quarter, Colgate’s volumes declined by 8% over the corresponding period of last year. JM Financial Institutional Securities Ltd analysts said: “Colgate’s higher wholesale dependence (relative to some of the front-line FMCG peers) likely worked against it again during the current disruption, as was the case during the currency-replacement programme of November 2016. Colgate’s volumes had declined 12% during that period versus Hindustan Unilever’s -4% and Dabur India’s -5%."

Colgate’s Ebitda margins contracted by 237 basis points to 24.5%, although gross margins expanded slightly. One basis point is one hundredth of a percentage point. Ebitda is earnings before interest, tax, depreciation and amortization.

Higher employee costs and increase in advertising expenses, as a percentage of revenue, reflects in the Ebitda margins. As a result, Ebitda declined by 15%. Overall, a sharp drop in tax outgo and a meaningful rise in other income led to a 3% growth in net profit to 204 crore.

According to Colgate, excluding the impact of prior-year tax reversals, the net profit after tax decreased by 3% in the March quarter. This is better than the 15% drop in Ebitda.

But investors are not cheering. Post-results, Colgate’s shares declined by about 3% in comparison to the flattish Nifty 500 index.

The company said all its plants are now operational. Some analysts said toothpaste tends to be more resilient than other categories. This, they believe, will help recovery in Colgate’s performance at a slightly faster pace.

But, some are sceptical. “Colgate, in our view, needs to demonstrate agility in adapting with changing times," wrote ICICI Securities Ltd analysts in a report on 21 May. They added: “We expect weak macros to impact premiumization, we see an increased acceptance of naturals offerings (Dabur has been able to capture most of Patanjali’s market share loss, in our opinion)."

Regardless of this, Colgate’s valuations already capture a fair bit of optimism.

The shares trade at nearly 41 times the estimated earnings for financial year 2021, based on Bloomberg data.

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