Colgate shares tank 4% on target price cuts post Q2 results, market share loss

Shares of Colgate Palmolive dropped 4 per cent in Friday's trade as 17 per cent drop in profit and 6 per cent fall in sales in Q2, amid already muted expectations, triggered downward revisions in earnings per share estimates. The FMCG stock fell 3.85 per cent to hit a low of Rs 2,200.60 apiece.

"We lower our FY26E-FY28E revenue/PAT estimates by 2 per cent/ 3-4 per cent to factor in a more protracted demand recovery and moderate margin outlook; we build FY25-FY28E revenue/EPS CAGR of 5 per cent. We maintain our HOLD rating on the stock; we roll over valuation to September-2027E and value the stock at P/E of 44 times, in-line with its long-period average one-year forward P/E, leading to a revised target of Rs 2,500 from Rs 2,535 earlier)," Systematix Shares and Stocks (India) Limited said.

Centrum Broking said Colgate has seen market share loss given HUL has seen marginal decline while Dabur India has seen growth in oral care portfolio. It expects around mid-single digit revenue CAGR over FY25-28 for Colgate, given largely single category play that has universal penetration while diversification agenda is yet to play out. Margins are likely to remain range-bound going ahead, it said while valuing the stock at Rs 2,360.

Antique Stock Broking is optimistic on the management’s’ initiatives of scaling up through new launches, premiumisation, and distribution expansion. However, it believes the impact of GST reforms is likely to continue till November. Additionally, subdued demand environment is likely to weigh on its near term performance, it said. This brokerage suggested a target of Rs 2,300 on Colgate from Rs 2,413.

Analysts noted Colgate's performance has been relatively weak over the past 4-5 quarters, marked by muted revenue growth and margin contraction. Analysts said the sustained management thrust protecting Colgate’s elevated margin has a bearing on its topline performance. They also see limited room available for margin expansion from hereon, as further any action to enhance margin will impact volume growth.

Emkay Global Financial Services noted that its earlier concerns about Colgate-Palmolive (India) being a single-category company with elevated margins have played out, as the company continues to face competitive pressures and macroeconomic headwinds affecting its topline performance.

“The GST reduction could aid demand by improving affordability; however, the benefit for Colgate may be limited. The company’s premiumisation strategy and efforts to promote the ‘twice-a-day brushing’ habit will require sustained media investments and product innovations, most of which are already in place. Additionally, Colgate is likely to lose some input tax credit benefits,” Emkay said. The brokerage maintained its SELL rating and cut its Sep-26 target price to Rs 2,000, valuing the stock at 35 times P/E.

Nirmal Bang Institutional Equities expects muted earnings growth for Colgate, estimating a 2.2 per cent CAGR in PAT between FY25 and FY27, and believes valuations at 45.4 times FY27E EPS appear fair.

“We maintain our target multiple at 42 times — consistent with the five- and ten-year average range of 41–43 times — and value the stock at Sep-27E EPS, arriving at a target price of Rs 2,400 (vs Rs 2,390 earlier). We retain our HOLD rating,” Nirmal Bang said.