Broker's Call: Colgate-Palmolive (Hold)

| Updated on May 22, 2020 Published on May 23, 2020

JM Financial Services

Colgate-Palmolive (Hold)

CMP: ₹1,313.7

Target: ₹1,405

Colgate’s 4QFY20 remained a lacklustre quarter — with impact of the lockdown being more accentuated than we anticipated, given that the company doesn’t really have any season-dependent summer products that would have indexed the quarter’s revenue towards end-March when the country got locked down. In that context, 8 per cent volume decline was sharper than warranted implying that activity-levels during the last few days of the quarter were sub-10 per cent at best.

Colgate’s relatively higher wholesale dependence likely worked against the company again during the current disruption phase, as it did post the currency-replacement programme in November 2016. Margin management fell short as well, with gross margin down 100 bps vs Dec-Q (flat y-o-y) despite a more benign costs environment; EBITDA margin was expectedly impacted by scale deleverage, given the lower turnover during the quarter.

Persistently weak performance coupled with absence of any near-term catalyst and rich valuation (42x NTM EPS) would constrict stock performance in the days ahead, in our view. Rating remains at ‘hold’.

Published on May 23, 2020

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