IGI Logo

Decent quarter; Outlook positive

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

* Q4FY22 standalone revenue grew 1.4% YoY to Rs. 1,293cr (+1.7% QoQ) driven by price hikes.

* Amid inflationary environment, EBITDA up 1.8% YoY to Rs. 429cr (+12.8% QoQ), with EBITDA margin improving 10bps YoY to 33.2% (+330bps QoQ) due to lower employee spends and AD costs.

* Brand power, innovation led investments, digital capabilities, launch of new products and variants will drive revenue growth in future. Judicious pricing actions, focus on cost optimization will offset input cost inflation. The stock is currently trading at attractive valuations. Hence, we recommend Accumulate rating on the stock with a revised target price of Rs. 1,800 based on 38x FY24E adj. EPS.

Topline growth due to price hikes

Standalone revenue grew 1.4% YoY to Rs. 1,293cr (+1.7% QoQ) in Q4FY22 driven by price hikes amid high inflationary environment. With this, CPIL became a 5,000cr turnover company that banks on core brands and innovation led investments to drive revenue growth in future. Calibrated pricing actions and focus on cost optimization and efficiencies is expected to maintain the gross and EBITDA margins.

Sequential improvement in margins due to cost optimization efforts

Gross profit down 1.6% YoY to Rs. 865cr (+2.0% QoQ), with gross margin contracting by 210bps YoY to 66.8% (+20bps QoQ) mainly due to increase in cost of raw materials (+300bps YoY, +180bps QoQ). However, EBITDA rose 1.8% YoY to Rs. 429cr (+12.8% QoQ), with EBITDA margin improving by 10bps YoY to 33.2% (+330bps QoQ) driven by reduced employee benefits expenses (-60bps YoY, -130bps QoQ) and lower advertising and publicity costs (-40bps YoY, -60bps QoQ). Subsequently, PAT grew 2.8% YoY to Rs. 324cr (+28.2% QoQ).

Key quarter highlights

* Relaunched Vedshakti toothpaste with a new improved flavor having better sensorials and unique combination of 5 Ayurvedic ingredients - Neem, Clove, Amla, Tulsi and Honey.

* Launched New Colgate Visible White O2 with a revolutionary new Active Oxygen technology that gives whiter teeth in just 3 days.

* The relaunched Colgate Strong Teeth that come with the new brand proposition of “Strong Teeth, Strong You” with its unique "Calcium Boost" formula facilitates the replenishment of natural calcium to one’s teeth thereby strengthening them.

* E-commerce business has grown 10x in the last 5 years.

* The Board declared second interim dividend of Rs. 21 per equity share for FY22.

Valuation

CPIL has delivered a resilient performance amid tough market conditions. With pickup in economic activities, there is scope for urban and rural demand to accelerate. Innovation led investments, new product launches, digital transformation and brand power will accelerate sales growth in future. Calibrated pricing actions, continued efforts on cost optimization and efficiencies will offset unprecedented input cost inflation. The stock is currently trading at attractive valuations. With positive outlook, we recommend Accumulate rating on the stock with a revised target price of Rs. 1,800 based on 38x FY24E adj. EPS.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer