Maintain ADD on Colgate Palmolive - Steady growth, buoyant margins - HDFC Securities

Mr. Varun Lohchab, Institutional Research Analyst, HDFC Securities and Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Colgate's Q1FY22 revenue and EBITDA was in line with our estimates. Net revenue clocked a steady show and grew by 12% YoY (HSIE 13%), +4% two-year CAGR. Volume growth was ~8% (HSIE 8%). Continued investments in brand building and innovation remained the key focus areas. Some of the recent launches like Colgate toothpaste for diabetics, Colgate Vedshakti mouth spray, and Colgate Vedshakti Oil Pulling are expanding the market for the company. The company recently launched Colgate Magik toothbrush, the first augmented reality toothbrush (for kids). The company was earlier concentrating on gaining share in naturals/ayurvedic toothpaste where competition is very tough. But renewed focus on innovative launches, which are potentially sizable categories, continues to inspire us. Gross margin expansion remained strong (price hike, premiumisation), up by 300/140bps YoY/QoQ to 69%. A&P grew by 41% YoY on a low base of -25% YoY in Q1FY21, while employee expenses and other expenses were up 5% and 11% respectively. EBITDA margin expanded by 87bps YoY to 30.5% (+196bps in Q1FY21, +833bps in Q4FY21) vs. HSIE 30.6%. We maintain the EPS estimates for FY22/FY23/FY24. We value Colgate at 42x P/E on Jun-23E EPS and derive a target price of INR 1,809. Maintain ADD.

Innovation led steady show: Revenue grew by 12% YoY (-4% in Q1FY21 and +20% in Q4FY21). Volume growth was at ~8% (-7% in Q1FY21, +16% in Q4FY21). Aggression in new launches continued throughout FY21 i.e., Colgate Toothpaste for Diabetics, Colgate Vedshakti Spray, Oil Pulling and Colgate Magik. The company also launched and relaunched several other toothpastes and toothbrushes during this period. Personal care portfolio (Palmolive) is also seeing strong traction as the company is extending into premium segments. In the past two years, the market share seems to be stable for toothpaste and toothbrush, while that for personal care has increased.

Margin expansion continues: GM expansion has sustained, up by 300bps YoY (+28bps in Q1FY21 and +301bps in Q4FY21) to 69.1%, (67.6% HSIE) - the highest margin since FY10. Employee expenses grew by 5% YoY (+9% Q1FY21), while A&P was up by 41% YoY on a weak base as the company continued investment in brand building. Other expenses were up by 12% YoY. EBITDA margin expanded by 87bps YoY (+196bps in Q1FY21 and +833bps in Q4FY21) to 30.5%, in line with our expectation of 30.6%. EBITDA grew by 15% YoY (HSIE 17%).

Shares of COLGATE-PALMOLIVE (INDIA) LTD. was last trading in BSE at Rs. 1704.25 as compared to the previous close of Rs. 1709.1. The total number of shares traded during the day was 17404 in over 2262 trades.

The stock hit an intraday high of Rs. 1737.55 and intraday low of 1670.15. The net turnover during the day was Rs. 29461844.

Source : Equity Bulls

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