Colgate-Palmolive India’s September quarter (Q2FY26) performance has reinforced concerns among brokerages about the company’s continued market challenges.
Photograph: Dado Ruvic/Reuters
Analysts say the toothpaste major’s volumes and revenue were hit by a ‘double whammy’ of goods and services tax (GST) rate cuts and intense competition, with limited signs of a near-term recovery.
According to Japan-based brokerage Nomura Research, Colgate’s toothpaste volumes fell an estimated 8.5 per cent year-on-year (Y-o-Y), higher than their expectation of a 5 per cent decline.
It is primarily due to temporary disruptions at distributors and retailers following GST rate cuts.
Revenue, meanwhile, declined 6.3 per cent Y-o-Y, broadly in line with Nomura’s estimates but below Bloomberg consensus forecasts
of a 3 per cent drop.
Analysts at Nomura highlighted that Colgate’s premium offerings, led by Colgate Visible White Purple, continued to grow.
They were supported by targeted marketing campaigns, including the new “Cavity-Proof” initiative under Colgate Strong Teeth and the launch of three body washes in the Moments range.
However, they cautioned that recovery in H2FY26 is expected to be gradual, with re-stocking benefits likely to be spread across the third and fourth quarters.
Domestic brokerage Nuvama Institutional Equities (Nuvama) also pointed out the impact of the GST cut on Q2 performance, noting that revenue fell 6.2 per cent Y-o-Y and operating profit dropped 6.4 per cent, largely in line with estimates.
The brokerage estimated that toothpaste volumes declined 4 per cent Y-o-Y compared with 8-9 per cent growth in Q2FY25.
Nuvama stressed that Colgate faces structural disadvantages under the new GST regime due to its single-category concentration in oral care.
This is in contrast to the diversified fast-moving consumer goods (FMCG) peers like Hindustan Unilever (HUL) and Dabur, which can cross-subsidise margins across multiple product categories.
ICICI Securities echoed these concerns, noting that Colgate’s 6.2 per cent Y-o-Y revenue decline implied a 7-8 per cent volume drop amid GST-led destocking and competitive pressures.
The brokerage said that innovation and premiumisation had so far failed to drive meaningful growth, and market share was being eroded.
HUL’s oral care segment declined marginally, while Dabur posted high single-digit growth, signalling competitive pressures in Colgate’s core category.
Despite a weak show on the revenue front, gross margin remained resilient, improving by 85 basis points (bps) Y-o-Y to 69.2 per cent, better than estimates.
This was aided by a benign input cost environment and better mix.
Robust gross margins coupled with a tight control on overhead costs led to a 60 bps expansion in operating profit margins.
Brokerage recommendations varied based on valuation and risk appetite.
Nomura has maintained a ‘Reduce’ rating on Colgate-Palmolive stock, lowering its target price to Rs 2,200 from Rs 2,350 due to delayed recovery and margin pressures.
It cited a modest 7.5 per cent earnings per share (EPS) compound annual growth rate (CAGR) over FY26-28F.
Nuvama retained a ‘buy’ rating but trimmed its target price to Rs 2,870 from Rs 3,135, factoring in GST-related margin pressures and competitive headwinds.
ICICI Securities maintained a ‘sell’ rating, with a DCF-based target of Rs 1,800, highlighting continued category fatigue and structural stagnation.
JM Financial Research believes that a favourable base along with expected benefit of GST rate reduction and continued strength in premium portfolio should arrest volume decline and result in recovery in H2FY26.
While Colgate continues to launch new products and campaigns, brokerage views suggest that the toothpaste leader faces structural challenges in a market disrupted by GST reforms and intensifying competition.
Volume recovery remains elusive, and near-term visibility is limited.
Analysts agree that margins are currently sustained by cost discipline rather than robust demand, leaving the company’s earnings growth vulnerable in H2FY26.
Upside risks, they note, would include stronger-than-expected volume growth and higher margin expansion if market share stabilises.
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