BackColgate’s shares take a knock after subdued Q1FY22 earnings
Colgate stock has underperformed the Nifty 100 in the past one year. As such, valuations are not demanding with shares trading at around 40 times estimated earnings for financial year 2023, based on Bloomberg data
PremiumColgate Palmolive (India) Ltd’s shares declined more than 3% intraday on Thursday on the National Stock Exchange. This on a day when the broader Nifty 50 index was marginally higher.
The reason is simple. June quarter results of the company, which offers oral care products, are slightly lower than expected. Colgate’s operating revenues increased 12% year-on-year to Rs1,158 crore. Of course, this was helped by the favourable base of last year, considering that the performance then was hit by the nationwide covid-19 lockdown. On a two-year compound annual growth rate (CAGR) basis, revenues have risen 3.7%, which is nothing to write home about.
Further, while Ebitda margins expanded 87 basis points from the year ago quarter to 30.5%, the measure is 240 basis points lower vis-à-vis the March quarter. Ebitda is earnings before interest, tax, depreciation and amortization; a key measure of profitability for companies. One basis point is 0.01%.
It is worth noting here that March quarter Ebitda margins were at a high and investors are likely to take some moderation on this front in their stride. Further, on a sequential basis, other expenses and staff costs were higher as a percentage of sales in the June quarter. Encouragingly, Colgate has managed to expand its gross profit margin both sequentially and on a year-on-year basis.
Overall, Colgate’s Q1FY22 net profit rose around 18% year-on-year to Rs233 crore. This is a tad lower than the net profit of Rs240 crore estimated by analysts, polled by Bloomberg. Colgate’s profitability was also hit by lower other income.
To be sure, the Colgate stock has underperformed the Nifty 100 index in the past one year. As such, valuations are not demanding with the shares trading at around 40 times estimated earnings for financial year 2023, based on Bloomberg data. The same measure for peers Dabur India Ltd and Marico Ltd stands at about 48 times and 45 times, respectively.
Going ahead, investors would watch for signs of meaningful improvement in Colgate’s sales growth. An outperformance on this count would go a long way in improvement sentiments for the stock.
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