Total operating revenue growth stood at just almost 1% year-on-year (y-o-y) to ₹1,291 crore. The company has not disclosed data on volume performance. However, analysts estimate volume to have dropped by 2-3% y-o-y in Q3. “For the fourth quarter in a row, Colgate reported a volume decline and outcome was weaker-than-expected," said a Jefferies India report dated 24 January.
Colgate said adverse macro factors weighed on oral care consumption last quarter. Gross margin rose sequentially, but fell by 77 basis points versus the same period last year. One basis point is 0.01%. But the drop in earnings before interest, tax, depreciation and amortization (Ebitda) margin was steeper at 174bps y-o-y to 28%. Ebitda performance was mainly hurt owing to higher advertising expenses. However, this could be beneficial eventually as it may drive growth.
As such, expectations from Colgate’s new managing director and chief executive officer, Prabha Narasimhan, are high. In a meeting with analysts last month, Narasimhan said her main goal would be to boost sales volume. The penetration of the oral care category is high. Hence, volume growth can come through higher frequency of brushing. “Premiumization in oral care and building personal care portfolio also are a priority. While this is an uphill task needing patience, we still think Colgate needs greater aggression," said analysts from Jefferies.
Of course, execution remains key now and investors will follow that closely.
Meanwhile, Colgate’s shares are down by about 3% since it announced Q3 results. Taking this into account, the stock is up by just 2.4% over the last year, which is nothing to write home about. The stock trades at nearly 35 times estimated earnings for FY24, Bloomberg data show.
While valuations seem inexpensive compared to other consumer companies, the scope for sharp upsides appear limited, at least in the near-term. While announcing Q3 results, Hindustan Unilever said it is looking at green shoots in rural demand. Improving rural fortunes augur well for Colgate given its vast exposure to the market.
Having said that, investors are likely to wait for strong signs of pick up in volume and revenue growth.
