Colgate Palmolive India (COLPAL) posted a muted performance in Q3FY2022 with revenues growing by 4% (driven by a 3% volume growth) to Rs. 1280.1 crore while OPM declining by 36 bps to 29.7% resulting in PAT growth of 2% at Rs. 252 crore. Gross margins decreased by 316 bps to 66.6% in Q3. However, lower ad-spends arrested a significant dip in OPM that stood at 29.7%. 9MFY2022 revenues grew by 7% and the OPM stood at 30%.
In past few quarters, COLPAL has launched several new products under its core toothpaste category and entered into categories (including skin cleansing). Thus the leadership is focusing on gaining market share in core toothpaste category and improve its revenue growth visibility in the medium term. The stock has corrected by 22% in the last six months and is currently trading at attractive valuations of 35.0x and 33x its FY2023E and FY2024E earnings. Any improvement in market share in the backdrop of stiff competition from large players such as HUL and Dabur (sustained market share gains over the past few quarters) would be key re-rating triggers for stock. We maintain a Buy on the stock with an unchanged price target of Rs. 1,850.
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