Colgate-Palmolive India hit a 52-week intra-day high of Rs 2,760.95 on the BSE on Tuesday in a weak market.
This isn’t the first time that the stock has outperformed the broader indices in recent months. In the last one year, while the BSE FMCG index and the Sensex grew 18.74% and 25.70%, Colgate’s shares surged nearly 83%. Year-to-date, the stock price has grown 8.53%, with the Sensex remaining flat and the BSE FMCG index declining 6.06%.
On Tuesday, the picture was no different. While the BSE FMCG index and the Sensex closed down 0.29% and 0.50%, respectively, shares of Colgate-Palmolive rose 1.43% over the previous close.
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Analysts say the oral care major has seen its gross and operating margins consistently inch up in the last six quarters (September 2022 quarter to December 2023 quarter), cheering investors. This happened even as its domestic toothpaste volume growth remained weak amid sluggish rural demand and competitive actions from Dabur, Patanjali and Hindustan Unilever.
According to industry experts, Colgate is estimated to have a share of around 50% in the Rs 10,000-crore domestic toothpaste market, followed by Dabur at around 17-18%, HUL at 15-16% and Patanjali at 8-9%.
“If the 9% volume growth for the June 2023 quarter is set aside, Colgate’s domestic toothpaste volume growth in the last five quarters was flat to negative,” say analysts Mehul Desai, Sumanya Saraf and Richard Liu of brokerage JM Financial in a recent note.
In contrast, Colgate’s gross margins have inched up from 64% in the September 2022 quarter to 72% in the December 2023 quarter. Operating margins hovered in the 30-34% range.
“Gross and operating margins have been supported by benign input costs, especially in FY24. The company has also taken selective price hikes within its premium portfolio over the last few quarters. These actions have helped improve the margin profile,” the analysts said.
While Prabha Narasimhan, MD & CEO, Colgate-Palmolive India, cautioned in a recent analysts’ call that the rural market, which contributes around 35-40% to the company’s overall revenue, was yet to fully recover from a slowdown, the company would continue to push category adoption by increasing awareness and better product availability.
“Lower per capita consumption of oral care hygiene products provides a significant opportunity for growth in the domestic market. Better oral hygiene habits will help consumption to improve, as just 20% of households in India brush twice a day, while 55% of rural households do not brush on a daily basis,” she said.
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Analysts at brokerage Sharekhan say the Colgate management is focusing on improving the growth in the toothpaste category by creating awareness about oral hygiene, especially in rural areas.
“Further, the company is adding more premium variants to provide more options to consumers in urban markets for better dental hygiene. This strategy will take time to yield results as formation of habits requires time,” the brokerage said.
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