Colgate Palmolive: Demonetisation hurts growth
By Nabamita Chatterjee | Vjmedia Works | January 31, 2017
The impact of demonetisation led to sharp liquidity crunch, especially in the rural markets. To overcome this challenge, the company extended credit to the trade, provided additional incentives and accelerated process of trade claims. The management expects gradual pick up in the market as liquidity situation improves.
Colgate reported weak set of numbers for the quarter ended December’16 with net sales falling by 8.8% to Rs8.7bn and net profit by 22.5% at Rs1.3bn. According to the press reports, “Considering the weak set of numbers in wake of demonetisation, we have reduced our earnings estimates downwards by 8% and now expect the company to report 9% growth in revenues and earnings through FY16-18E. We maintain our BUY rating on the stock with revised target price of Rs1028.”
Colgate’s volume market share in toothpaste stood at 55.4% in Jan-Dec’16 and at 47% in the toothpowder category. The company’s share in toothpaste however is lower compared to 57.3% witnessed in the base quarter. Some of the new products introduced in FY17 include Cibaca Vedshakti, Colgate Sensitive Clove, Colgate Kids toothpaste and MaxFresh Power freeze toothpaste.
The brand expect Colgate to post revenues of Rs43.5bn and Rs49.4bn and net profit of Rs5.9bn and Rs6.8bn in FY17E and FY18E respectively. They remain positive on the company over the medium term on the back of Colgate’s market leadership, pricing power, entry in naturals paste with Vedshakti and implementation of GST
