Nomura has maintained its 'Buy' rating on Colgate-Palmolive (India) but cut its target price to Rs 2,175 from Rs 2,550, factoring in higher advertising and promotional (A&P) spending and lower earnings estimates.
In its October 23 report, the brokerage said the company's second-quarter sales growth remained in double digits, but higher advertising expenditure weighed on operating profit growth. Nomura expects the increased spending to support premiumisation and sustain high-single-digit volume growth, even as near-term profitability remains under pressure.
Colgate-Palmolive India's sales grew 12.3% year on year in Q2, supported by volume growth of around 8% and pricing growth of around 4%. Volume growth was largely in line with Nomura's estimate of 9%, while sales growth was slightly below its and Bloomberg consensus estimates of around 14% and 13%, respectively.
The company increased advertising spending by 40% year on year to drive premiumisation. Its initiatives included a Harry Potter-themed oral care range for children and adults, a Bluey-themed toothpaste in a vacuum-locked pump dispenser, expanded communication for Colgate Visible White as a "Beauty Secret" and partnerships with athletes for Colgate Total.
Nomura expects the aggressive advertising expenditure to support the company's premiumisation strategy and sustain high-single-digit volume growth. Combined with a 4% price increase, this should help maintain double-digit sales growth in FY27, the brokerage said.