Colgate-Palmolive (India) Ltd’s pursuit of growth has been painful, with the September quarter (Q2FY26) not bringing any respite for the oral care company. Not only did revenue fall year-on-year again, but it did so at the sharpest pace in the past three quarters. Revenue dropped 6.2% to ₹1,520 crore in Q2 after falling 4.2% in Q1 and 1.8% in Q4 of FY25.
Investors have noted this, pulling the stock down almost 30% in the past year. That marks a significant underperformance to the Nifty FMCG index, which declined about 4% during the same period. The Colgate stock trades just about 3% above its 52-week low of ₹2,151 on 14 August.
Emkay Global Financial Services’ estimates Colgate’s Q2 volumes to have dropped about 8% and the revenue decline to be the company’s weakest show since Covid. In comparison, Hindustan Unilever Ltd’s oral care segment dipped marginally due to the rationalisation of the goods and services tax (GST) that came into effect on 22 September, just eight days before the end of Q2; Closeup delivered low-single digit growth.
Colgate said it continued to navigate through a difficult operating environment, and its Q2 performance also reflects the transitory disruption at distributors and retailers across channels caused by the GST rate revision. Last quarter, GST rates on the company’s entire oral care portfolio were reduced to 5% from 18%.
Moreover, the challenge to boost growth rates became tougher, given Colgate’s double-digit revenue growth of 11.5% in H1FY25. Growth was 10.1% in Q2FY25.
Colgate’s premium portfolio continued strong growth momentum in Q2, led by Colgate Visible White Purple, its advanced whitening toothpaste. To be sure, Colgate’s margin show was better, aided by benign input costs.
Margin changes
The company’s Q2 gross margin expanded 91 basis points to 69.5%, while its Ebitda margin contracted slightly by 9 bps to 30.6%. In Q1, the gross margin and Ebitda margin had contracted 172 bps and 241 bps to 68.9% and 31.6%, respectively. Ebitda is earnings before interest, tax, depreciation and amortization.
A recovery in revenue growth can be expected, but it may be gradual amid stiff competition.
“We see Q3 sales benefiting from the primary sales shift from Q2, expected GST-driven demand recovery, and better topline growth for low-priced unit packs (price benefit pass-on to be via grammage), while competitive intensity would be key to watch,” said Emkay’s analysts.
The stock trades at 43 times estimated earnings for FY26, as per Bloomberg. A re-rating from current levels will be contingent on the pace of acceleration in sales growth, noted JM Financial Institutional Securities Ltd.
“To that extent, we believe a lot more work needs to be done on driving category growth and portfolio diversification,” the brokerage said in a report dated 23 October.
