Pressure plaque steadily builds on Colgate-Palmolive's Q4 performance

Can it fill the cavity of doubt with its premium strategy? Experts weigh in

India’s largest listed oral care company, Colgate-Palmolive (India), undershot even the modest expectations of the Street in the January–March quarter (Q4) of 2024-25 (FY25). The subdued performance was driven by rising competition and sluggish demand in urban areas.

 

Although a rebound is expected in the second half of the current financial year, brokerages have lowered earnings forecasts and expect the stock, which has fallen roughly 8 per cent over the past week, to face further downward pressure.

 

Despite the lacklustre near-term outlook, valuations remain elevated, with the stock trading at 45x consensus earnings estimates for 2025-26 (FY26).

 

In the March quarter, Colgate’s revenue declined 1.8 per cent due to flat volumes and negative price realisations. Rural demand has stayed resilient, outperforming urban markets for the third straight quarter, and the premium segment is expanding faster than the overall market. However, mid-to-lower-tier urban segments continue to feel the strain. The company aims to lift the consumption frequency of core products (Colgate Strong Teeth, Active Salt, MaxFresh), accelerate premiumisation, grow the toothbrush category, and build its personal care range.

 

The near-term sales trajectory is unlikely to improve. Analysts at Prabhudas Lilladher, led by Amnish Aggarwal, remain cautious, given continued weakness in mass urban demand, a heightened competitive landscape, promotional intensity in oral care, and slower realisation growth at 1.2 per cent in FY25.

 

The weak top-line growth has prompted some brokerages to stay wary. Emkay Research maintains a ‘sell’ rating, citing a bleak growth outlook. Analyst Nitin Gupta projects limited revenue gains (6 per cent annual growth from FY25 to 2027-28E) and constrained margin expansion (100 basis points/bps by FY28), resulting in just 7 per cent earnings growth over the period. 

 

Kotak Research also expects Colgate’s first-half FY26 results to be pressured by a high base and a weak macro environment. Led by Jaykumar Doshi, Kotak has trimmed revenue estimates by 3–4 per cent and earnings by 2–3 per cent for FY26 and 2026-27 (FY27), maintaining a ‘reduce’ rating.

 

Although top-line growth disappointed, the company exceeded expectations on margins. Gross margins widened by 130 bps year-on-year, supported by easing input cost inflation. Operating profit margins fell 165 bps to 34 per cent but still beat estimates.

 

The company is guiding for margins between 32 and 34 per cent, though brokerages will monitor closely as it plans to maintain elevated advertising and promotional spending to drive volumes. Prabhudas Lilladher highlights that the phase of rapid realisation and margin expansion has ended. Between 2019-20 and FY25, gross and operating margins expanded by 470 and 680 bps, respectively.

 

ICICI Securities warns of further valuation compression. Analysts led by Manoj Menon describe the disappointing Q4FY25 as the start of an extended downturn. The company’s recent strategy of relying on price hikes for revenue growth is deemed unsustainable.

 

The stock’s price-to-earnings multiple could drop to 30x from 45x FY27 estimates, despite underperforming the Nifty by 12 per cent over the past year. ICICI Securities has downgraded the stock from ‘hold’ to ‘sell’.