Colgate Palmolive rallies 6% in a weak market, trades near record high

In the past two months, post its June quarter (Q1FY20) results, Colgate Palmolive has outperformed the market by surging 17 per cent, as against a 5 per cent decline in the benchmark S&P BSE Sensex

Expectations of recovery in volume pushed shares of Colgate Palmolive India 6 per cent higher intra-day to Rs 1,327 in an otherwise weak market on the BSE on Monday. The personal products company's stock, which was trading higher for the third consecutive trading session, was quoting close to its record high level of Rs 1,365, touched on January 1, 2019.

In the past two months, post its June quarter (Q1FY20) results, Colgate Palmolive has outperformed the market by surging 17 per cent, as compared to a 5 per cent decline in the benchmark S&P BSE Sensex.

The company logged domestic volume growth of 4 per cent and a sub-50 per cent volume market share in the toothpaste segment in Q1FY20, lowest since Q3FY09 (49.6 per cent) with value share being 20/30bps lower than volume share.

“Colgate’s volume grew a mere 4 per cent in the past 12 quarters, due to intense competition in the oral care industry. The nationwide launch of Colgate Swarna Vedshakti in FY19 is gaining significant traction. Moreover, with corrective action in the natural portfolio, we remain optimistic about the volume share regain,” analysts at Dolat Capital said in annual report analysis.

Going ahead, aggressive marketing, high ad spends, launch of more variants, price hikes, and expansion of distribution reach would help increase market share. The company’s EBITDA margins to sustain around 27 per cent, due to modest input cost environment, measured price hikes, and continued cost rationalization measures, it added.

Analysts at Prabhudas Lilladher, however, believe that given Colgate's weak positioning in high growth naturals segment and intense competition from Dabur, Patanjali and other players in the naturals segment, its intent to achieve 6-7 per cent volume growth looks difficult.

"It will have to lead industry growth and gain share in order to sustain volume growth in mid to high single digits, as it has close to 50 per cent share of the market," they wrote in a company update.

JP Morgan has ‘overweight’ rating on Colgate Palmolive with June 2020 target price of Rs 1,350 per share as the brokerage firm believes the worst is behind the company and that gradual improvement in volume/market share would drive a stock re-rating.

At 10:55 am, the stock was trading 5 per cent higher at Rs 1,316 on the BSE, as against a 0.52 per cent decline in the benchmark index. A combined 1.04 million shares have changed hands on the counter on the BSE and NSE so far.