scorecardresearchColgate-Palmolive falls 4%; 4 brokerages have this to say on its future plans

Colgate-Palmolive falls 4%; 4 brokerages have this to say on its future plans

Updated: 14 Dec 2022, 04:19 PM IST
TL;DR.
Shares of Colgate-Palmolive are up 11 percent this year as of December 13, against a 7 percent gain in the equity benchmark Sensex.
Brokerage firms remained mixed and retained their views on the stock after the company's analyst meet.

Brokerage firms remained mixed and retained their views on the stock after the company's analyst meet.

Shares of Colgate-Palmolive (India) fell 4.26 percent to end at 1,571.60 on BSE on December 14, a day after the company conducted an analyst meet.

During the meeting with analysts, Colgate-Palmolive’s new CEO Prabha Narasimhan unveiled her plans on how the company aspires to grow in oral care, and increase premiumization in the category while also focusing on the non-oral care business.

Shares of Colgate-Palmolive are up 11 percent this year as of December 13, against a 7 percent gain in the equity benchmark Sensex.

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Colgate-Palmolive stock in last one year.

Brokerage firms remained mixed and retained their views on the stock after the company's analyst meet. Most of them see limited upside and do not recommend a fresh buy.

The new CEO has new plans for the company. As the brokerage firm Motilal Oswal Financial Services pointed out, the company plans to focus on rural areas where 55 percent of the population does not brush daily and in urban areas where only about 20 percent of the households brush twice a day.

Motilal Oswal Financial Services, in a report, said, from a premiumisation perspective, the company's focus will be on teeth-whitening products with an emphasis on oral beauty. Dentist-specific products from the parent portfolio, Colgate Total (the largest global brand) and kids' toothpaste are other avenues for premiumisation. Palmolive’s focus on body wash and more recently face wash will be its sole foray into personal care products for now.

Motilal Oswal has a 'neutral' view on the stock with a target price of 1,620 as it believes with weak revenue and earnings growth likely to sustain going forward, there is unlikely to be any re-rating of the stock.

Motilal said with high oral care penetration as well as the loss of market share to herbal players, volume growth has been elusive for the company for several years now.

"Premiumization in general trade, as well as traction in personal care, have been quite slow. While initiatives for growth under the new CEO are welcome, we do not see any material change in business prospects over the near to medium term," said Motilal Oswal.

The brokerage firm underscored that an EPS (earnings per share) CAGR of about 5.5 percent over the next two years implies a tepid outlook with volumes actually declining on a year-to-date (YTD) basis this year. Over the past five years, sales growth and earnings growth stood at an unimpressive 5 percent CAGR and nearly 10 percent CAGR, respectively, Motilal Oswal said.

On the other hand, brokerage firm Kotak Institutional Equities has an 'add' call on the stock with a target price of 1,650, citing that while Colgate-Palmolive has consistently disappointed on market development and market share defence over the past few years, the new CEO’s thrust on reviving volume growth is encouraging.

JM Financial maintained a 'hold' call on the stock with an unchanged target price of 1,625.

"We see no cause for a change in stance on the stock just yet and will look to see if there is indeed increased aggression and a higher order of execution excellence in the business going ahead," said JM Financial.

Brokerage firm Nuvama Wealth Management (formerly Edelweiss Securities) also maintained a 'hold' call on the stock with an 'unchanged target price of 1,708.

The brokerage firm expects margin recovery from Q4FY23 onwards, but the steps the newly appointed MD takes will be vital.

"While new initiatives and the premium segment are seeing noticeable traction, we await consistent market share gains with category expansion and a higher focus on non-oral care. Rupee depreciation and reasonable presence of Dabur and Patanjali in the natural toothpaste segment need to be watched out for," said Nuvama.

Brokerage firm Nirmal Bang maintained an 'accumulate' call on the stock with a target price of 1,720.

Nirmal Bang said it will continue to monitor the execution and change in growth momentum as Colgate-Palmolive has the potential to gain market share in the toothpaste portfolio with its strong distribution set-up, focus on innovations and the power to spend higher on the category versus its peers.

"While pricing will remain a growth lever in the near term, we believe that volume growth should remain one of the key focus areas for the new MD & CEO, Prabha Narasimhan. Volume growth would be a function of economic conditions, rural growth recovery (high saliency at nearly 40 percent against peers remains an important driver for Colgate-Palmolive) and execution," said the brokerage firm.

“Over the medium term, an increase in PCC (per capita consumption) remains a big opportunity in the toothpaste category, but it is increasing only gradually. It will require some big initiatives from the market leader to make behavioural changes in consumers to make them increase the frequency of brushing their teeth,” said Nirmal Bang.

According to a MintGenie poll, an average of 31 analysts have a ‘hold’ call on the stock.

Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.

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First Published: 14 Dec 2022, 02:19 PM IST