During Wednesday’s trading session, the shares of the country’s leading Oral Care brand slumped by around 3 percent to hit an intraday low at Rs. 2,629 on BSE.
Stock Performance
With a market cap of Rs. 72,297.8 crores, at 02:03 p.m., the shares of Colgate Palmolive (India) Limited were trading in the red at Rs. 2,658, down by nearly 2 percent, as against its previous closing price of Rs. 2,710.25.
The stock hit its 52-week high at Rs. 3,893 on 4th October 2024, and compared to its current trading price of Rs. 2,658, the stock is trading at a discount of nearly 32 percent.
The stock has delivered positive returns of nearly 7.2 percent of returns in one year, while around 14 percent of negative returns in the last six months. Similarly, the shares of Colgate have fallen by around 6 percent in the last one month.
Potential Reasons behind the fall
FMCG Index falling: The Nifty FMCG Index has experienced a significant decline, dropping approximately 10,800 points from its peak in September to settle at around 55,454.
Over the past six months, the index has fallen by nearly 7.7 percent, or about 4,610 points, reflecting broader market pressures on FMCG stocks.
The Nifty FMCG Index is designed to represent the performance of Indian companies in the Fast-Moving Consumer Goods (FMCG) sector. It comprises companies that produce and market non-durable, mass-consumption products that are readily available off the shelf.
Impact of Inflation and Sluggish Demand on FMCG Sector: India’s FMCG sector is facing challenges due to inflation and slow demand, which are impacting consumption patterns and putting pressure on margins.
Rising input costs have led to price hikes, reducing consumer demand, particularly in urban areas. As a result, the persistent inflationary pressures are impacting profitability and growth prospects, creating a challenging environment for FMCG companies.
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Fall in Sales: Colgate reported a Domestic Net Sales Growth of 12.8 percent in Q1 FY25, which fell to 10.5 percent in Q2 FY25, signalling a slowdown in revenue growth momentum.
Fall in Margins: The company’s Gross Margin dropped from 70.4 percent in Q1 FY25 to 68.4 percent in Q2 FY25. Similarly, EBITDA margins decreased from 34.2 percent to 30.9 percent over the same period, highlighting rising costs and margin pressures.
Increased Spending & Profit Margin Decline: Despite a 16.2 percent YoY increase in net profit, the market responded negatively to only a 3 percent growth in EBITDA due to a 205 basis points decline in profit margins.
This was driven by increased promotional spending, which rose by 17.8 percent in Q2 FY25 compared to the same period the previous year, amid a challenging demand environment. These factors might raise concerns among investors about the company’s future profitability.
Rising Competition: The toothpaste segment, particularly in urban areas, has seen heightened competitive pressure, adding to the challenges faced by Colgate in maintaining its market share and profitability.
Brokerage Target
The domestic brokerage firm Motilal Oswal Financial Services assigned a target price of Rs. 3,250 per share on Colgate Palmolive (India) Limited, representing a potential upside of nearly 22 percent from Wednesday’s closing price of Rs. 2,669.
Financials
Colgate Palmolive reported a marginal growth in revenue from operations, experiencing a year-on-year increase of nearly 10 percent, rising from Rs. 1,471 crores in Q2 FY24 to Rs. 1,619 crores in Q2 FY25.
Similarly, the company’s net profit increased from Rs. 340 crores to Rs. 395 crores over the same period, representing a growth of around 16.2 percent YoY.
About the Company
Incorporated in 1937, Colgate-Palmolive (India) Limited is a subsidiary of Colgate-Palmolive, USA, and is engaged in the business of manufacturing/trading of toothpaste, toothpowder, toothbrush, mouthwash and personal care products.
Written by Shivani Singh
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