Colgate Palmolive surges 6% on strong sales growth in December quarter

Shares of Colgate-Palmolive (India) moved higher by 6 per cent to Rs 1,660 on the BSE on Friday in an otherwise volatile market after the company reported a double-digit year on year (YoY) growth of 10.1 per cent in domestic sales for the quarter ended December 2020 (Q3FY21). The stock was trading close to its all-time high level of Rs 1,676, touched on January 11, 2021.

The company's reported net sales, including export, grew 7.8 per cent YoY at Rs 1,224 crore in Q3FY21. Net profit during the quarter under review, meanwhile, jumped 24.7 per cent at Rs 248 crore as against Rs 199 crore for the same quarter of the previous year.

The growth, the management said, is largely driven by volumes given the company has significantly increased its marketing spends behind brand building and promotions. Given the sharp decline in commodity cost, gross margins expanded by 420 basis points (bps) while Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins went up by 250 bps over the previous year quarter.

"Our strategic and disciplined approach to building brands, driving innovation and relentless focus on winning on the ground continues to deliver per our expectations. Our continued efforts to amplify efficiencies across our operations have helped deliver strong gross margins, Ebitda and net profit growth," the management said in its press release.

"Colgate has seen strong revival in growth in the last six months with the category started growing at a faster pace specifically in rural regions. Moreover, benign raw material cost & various cost cutting measures have given it a levy to increase its investment behind brands through advertisements," ICICI Securities said in a note.

Further, the brokerage firm believes the company has been pro-active in new launches in last few quarters and visibility of mouth spray in retail outlets has increased effectively. "We believe the company would be able to grow at moderate pace in medium term with sustainable elevated margins going forward," it added while maintaining its positive stance on the firm.

"Sequential improvement in volume/sales growth is positive. Though 5 per cent volume growth is still at subdued mid-single digit, stronger rural demand and Colgate's increased innovation and distribution efforts can drive more improvement ahead. Margins have expanded strongly, owing to being input prices and price/mix. Outlook remains stable as increase in input inflation may be offset by moderation in ad spends, which increased sharply," analysts at Emkay Global Financial Services said with a 'buy' rating on the stock.