Colgate's stock faces downgrades post March quarter results

MUMBAI: Colgate's performance in the March quarter reinforces the company's strategy of pushing volumes, even at the cost of the bottomline. The company's net sales rose by 18% - driven by 12% underlying volume growth. The volume growth stood at 8% in the quarter to December. The volume gain is commendable given the high base and the intensifying competition. However, higher spend on advertisement and other expenditure took its toll on the company's margins. At 20.7%, the operating margin dropped nearly 400 bps.

With Procter & Gamble set to introduce Oral-B brand in the toothpaste category, analysts on the street view it as a direct threat to the market leader Colgate. While Colgate has managed to increase its market shares in the toothpaste, with a new MNC entrant in the category, it is likely to build pressure on the company's margins.

This has led most analysts to downgrade the company's stock, anticipating a drop in margins in the quarters ahead as the company would be forced to spend more on its brands to keep the competition in check. While Edelweiss and Fortune have maintained a hold on the stock, Emkay has downgraded it to hold and HDFC Securities and Antique Stock Broking have downgraded it to sell.