Brokerages downgraded Colgate-Palmolive (India) expecting an upcoming margin expansion phase for the company.

What Happened: Colgate-Palmolive (India)'s net profit increased by 20.1% to ₹379.8 crore in the March quarter. The company's net sales increased to ₹1,480.7 crore from ₹1,341.7 crore in the previous year. Gross margin expanded by 250 basis points (bps) to 69.1% in the quarter. 

The company said it will spend on campaigning to drive penetration in brushing twice a day. According to the company, only 20% of the urban population brush twice a day. It is also focusing on premiumisation by promoting products like Colgate Total and Colgate Visible White.

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Brokerage Views: HSBC downgraded the stock to "hold" and cut the target price to ₹2,900 from ₹2,950. The brokerage said Colgate had a strong run in the previous year due to which it had good results. It added that earnings outlook is normalising and the current valuation appears to be rich. HSBC says the company is unlikely to see the margin expansion it has seen in the last year. 

HDFC Securities said the gross margin expansion shown by Colgate in the last year is due to the price hikes it had taken across its product portfolio. The brokerage maintained its "reduce" call with a target price of ₹2,900. It reasons that the company would find it difficult to maintain margin gain as it cannot increase prices further. The company's new campaigns to drive penetration will need a lot of capital. 

Nomura also downgraded the stock to "reduce" with a target price of ₹2,450. Nomura says the risk-reward outlook for Colgate is unfavourable. The brokerage added that overall volume is under pressure and earnings growth will moderate going forward due as margin improvement could be limited.

Price Action: Shares of Colgate-Palmolive (India) were trading down 0.45% to ₹2,660.55 on Thursday morning session. 

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