Colgate-Palmolive results disappointed again even on low expectations, as a result of weak rural operating environment. Net sales (including operating income) was flat with likely 2% y-o-y volume decline. Three-year sales CAGR and average volume trend also continue to be weak at 4%/2%, respectively. Ebitda and PAT declined y-o-y, and resulted in a three-year CAGR of 5% and 7%, at the end of 3QFY23.
While the management stated that adverse macro factors affected company performance for the quarter, it expressed cautious optimism going forward. We do not expect earnings growth to resume strongly over the medium term, and thereby, reiterate our Neutral rating.
Colgate reported flat sales y-o-y at Rs 12.9 bn. 9MFY23 was also flat y-o-y at Rs 38.5 bn. Domestic sales growth was 2.3% y-o-y. We believe domestic volume declined 2% y-o-y. Ebitda declined 5% y-o-y to `3.6 bn. 9MFY23 Ebitda declined 3.6% y-o-y to Rs 10.9 bn. PBT declined 4.1% y-o-y to Rs 3.3 bn. The company’s focus is on building oral care habit in India, driving innovation and renovation through science-led products and premiumisation. Oral care consumption was adversely impacted by unfavourable macro factors. Colgate has partnered with the Andhra Pradesh government for the Oral health awareness program of ‘Bright Smiles Bright Futures.’
While performance for the quarter could have been adversely affected by the rural segment, the sales/Ebitda/PAT CAGR in the five-year ending FY23E is unimpressive at 4.7%/6.2%/8.3%, respectively. There seems to be no revival in rural sentiment.