IGI Logo

Solid Q4; Outlook optimistic

Colgate-Palmolive (India) Ltd. manufactures consumer products in the oral care and body care area. The company’s products include soaps, cosmetics, toilet preparations, toothpaste, toothbrushes, shaving brushes and glycerin.

* Q4FY21 standalone revenue rose 4.1% QoQ (+20.0% YoY) with core portfolio “Colgate Dental Crème” & “Colgate Max-Fresh” posting strong double-digit growth. Discretionary category saw a moderate revival.

* EBITDA grew 13.8% QoQ as margin expanded 280bps QoQ to 33.1% on improved product mix and A&P cost savings. Also, lower taxes and tax reversals from prior period aided PAT growth of 26.7% QoQ.

* Given resilient performance despite pandemic, aggressive volume growth, breakthrough innovations and sustained market share gains, we reiterate BUY rating on the stock with a rolled forward target price of Rs. 1,910 based on 42x FY23E adj. EPS.

Topline grows with successful new launches

Standalone revenue rose 4.1% QoQ to Rs. 1,275cr (+20.0% YoY) led by strong volumes across product categories. The toothpaste segment showed double digit growth with robust demand, while toothbrush and other discretionary segments witnessed a turnaround from the recent fall.

Although rural market (expanded ~3x with Muskaan) continues to outshine urban, the latter registered some resurgence. New products like “Toothpaste for Diabetics” (#1 SKU on e-pharma, ~20% repeat rate), Vedshakti Spray & Oil are gaining strong traction, especially in modern trade and e-commerce channels (+1,400bps vs. FY19), besides improved market share. With high customer loyalty, magnified digital reach and strategic partnerships (Online - 1mg, Offline – Apollo), Colgate remains #1 penetrated brand (88%) across categories.

Improved margins with optimized price mix

Gross margins improved with premiumization, price mix and investment towards brand building. EBITDA grew 13.8% QoQ to Rs. 422cr (+60.4% YoY) with an expansion in EBITDA margin by 280bps QoQ to 33.1% (+840bps YoY) upon large scale saving in ad spends (-24.9% QoQ, -4.3% YoY to Rs. 149cr) and other overheads. While material costs (+2.2% QoQ, +1.0% YoY) and employee expenses (+5.3% QoQ, +1.8% YoY) saw a mild uptick to Rs. 324cr and Rs. 91cr, respectively. Lower taxes and prior period reversals resulted in PAT spiraling 26.7% QoQ to Rs. 315cr (+54.1% YoY).

Key concall highlights

* Company amplified its product portfolio with launches like “Recyclable Tube”, India’s first Augmented Reality toothbrush – “Colgate Magik” for kids in Q4FY21.

* Vedshakti’s mouth spray saw ~30% repeat purchases despite a new category.

* High market share gains in E-commerce and MT channels - ~39% accounts for Naturals, Ayurveda & Ingredient based toothpaste; ~30-33% for Family toothpaste.

Valuation

With company’s primary focus to drive conversions through enduring increase in traffic and rising market share, we expect Colgate to continue delivering strong performance in the near-term. Given its entry into new product categories, expansion of existing brands, high customer loyalty and brand image, outlook remains promising. Hence, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 1,910 based on 42x FY23E adj. EPS.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at www.geojit.com
SEBI Registration number is INH200000345

Above views are of the author and not of the website kindly read disclaimer