Buy

Result Update Colgate Palmolive (India) Ltd Target Price

26th Oct 2021 FMCG 1,765

In-line Performance; Modest Valuations

(CMP as of Oct 25, 2021)
Colgate Palmolive (India) (CLGT) reported an in-line quarter vs our estimates across key
CMP (Rs) 1,533
performance metrics. Reported Revenue growth was 5.2% yoy at Rs. 1,344 Cr (Rs. 1,334Cr our
Upside /Downside (%) 15%
estimate) led by volumes growth of 4% in our view (4% our estimate) and ~1.2% price/mix led
growth. Core EBITDA Margins of 29.8% (30.2% our estimate) reported 222bps yoy contraction High/Low (Rs) 1,823/1,407
owing to GM contraction 132bps yoy owing to relatively high RM inflation and Market cap (Cr) 41,699
23bps/92bps/61bps rise in Staff Cost, A&P spends & other Operating Costs. A&P spends at Avg. daily vol. (6m) Shrs. 5,67,271
13.8% of Net Sales were higher by 92bps yoy as CLGT supported its new launches thereby
No. of shares (Cr) 27.2
curtailing EBITDA Margin expansion. Reported EBITDA came in at Rs. 401Cr down 2.1% yoy
(Rs. 403Cr our estimate). Recurring, PAT degrew by 1.8% yoy at Rs. 269Cr (Rs. 270Cr our
Shareholding (%)
estimates). To factor in the RM inflationary environment and thus pressure on Gross Margin and
EBITDA Margins we have revised our FY22E/23E/FY24E. However, CLGT‘s focus on driving Mar-21 Jun-21 Sep-21
growth via increasing oral care pie in India through renovation of core, innovation across price Promoter 51.0 51.0 51.0
points, driving per capita consumption/ higher frequency of brushing and developing new FIIs 16.9 18.6 19.1
segments are key growth drivers over the medium to long term. In this backdrop we do believe,
MFs / UTI 2.8 2.6 2.7
CLGT offers a decent opportunity of reasonable growth at 8%/6% Revenue/PAT CAGR
over FY21-24E, strong cash generation, higher dividend payout and fairly attractive Banks / FIs 0.1 0.1 0.4
valuations. Maintain BUY with downward revision in our TP of Rs.1,765 (Rs. 1,875 earlier) Others 29.2 27.7 26.8
as we lower our multiple a notch to 39x FY24E EPS (40x earlier) owing to pressure on
profitability from inflationary headwinds and its impact on profitability. Financial & Valuations
Key result takeaways Y/E Mar (Rs. bn) 2022E 2023E 2024E
 Single digit volume growth: We do think CLGT reported 4% volume growth and price/mix Net Sales 50.9 55.8 60.9
led growth of ~1.2% on phasing of promotion / trade spends eventhough CLGT took ~3% EBITDA 14.7 16.5 18.1
price increase across its portfolio. We understand that impact of price hikes taken during Net Profit 9.8 11.1 12.3
Q2FY22 is likley to get reflected in Q3FY22. EPS (Rs.) 36.1 40.9 45.2
 Elevated RM and Other Costs impact EBITDA Margins: We note CLGT reported a yoy PER (x) 42.5 37.5 33.9
decline in Gross Margins to 66.6% (our estimate – 67.2%) vs 68% in Q2FY21. This was on EV/EBITDA (x) 27.8 24.8 22.3
the back of relatively higher RM inflation. This RM inflationary pressure is likely to last for a P/BV (x) 24.4 23.6 21.4
while owing to rise in prices of crude & crude derivatives in our view. Alongside a 132bps ROE (%) 57.4 62.8 63.1
yoy decline in GM, 92bps/61bps rise in A&P spends & Other Expenses led EBITDA Margins
to furthur contract by 222bps yoy at 29.8%; our estimate – 30.2% and 32% in Q2FY21; ESG Disclosure Score**
reporting a drop below 30% after about 4 quarters.
Score
 Innovations and brand campaigns continue: CLGT continues to witness investments in Environmental 16.3
brand building and innovations to strengthen its core brand metrics. The company continues
Social 43.9
to invest in its recent innovations - Colgate Special Toothpaste for Diabetics, Colgate
Vedshakti Mouthspray and Colgate Gentle range of toothbrush which continues to gain Governance 48.2
traction with consumers across platforms. Total ESG Score 30.2
 Market penetration & momentum: The overall growth momentum across Colpal’s Source: Bloomberg, Scale 0.1-100
**Note: This score measures the amount of ESG data a company reports publicly
brands/categories has shown a consistent trajectory with steady volume growth and does not measure the company's performance on any data point. All scores
are based on 2020/2021 disclosures
performance sequentially even as competitive activity remains high. Overall penetration
trends remain strong and CLGT is seeing favourable trends.
Relative performance
Our Take 165

We like CLGT’s business orientation of ‘essential and stable’, and its emphasis on a mix of 145
125
volume/value growth, renovation of core, innovation across price points and introducing new
105
platforms. RM inflationary headwinds to weigh on margins in the near term as crude prices 85
remain high impacting packaging costs majorly. To factor the RM headwinds we lower our 65
FY22E/23E/24E estimates on Revenue/EBITDA/PAT by 1-6%. Maintain BUY with revised TP 45
of Rs. 1,765 (earlier Rs. 1,875) as we also lower our multiple a notch to 39x FY24E EPS. 25
Jan-20 Aug-20 Mar-21 Oct-21

Key Financials (Standalone) Colgate-Palmoliv BSE Sensex

(Rs. Cr) FY21 FY22E FY23E FY24E

Source: Capitaline, Axis Securities
Net Sales 4,810 5,087 5,576 6,087

EBITDA 1,510 1,474 1,647 1,815 Suvarna Joshi

Net Profit 1,035 981 1,111 1,230 Sr. Research Analyst

EPS (Rs.) 38.1 36.1 40.9 45.2 Call: (022) 4267 1740
email: suvarna.joshi@axissecurities.in
PER (x) 40.3 42.5 37.5 33.9

EV/EBITDA (x) 27.3 27.8 24.8 22.3 Dhananjay Choudhury

P/BV (x) 24.4 24.4 23.6 21.4 Research Associate
email: Dhananjay.choudhury@axissecurities.in
ROE (%) 60.5 57.4 62.8 63.1
Source: Company, Axis Research

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Q2FY22 Financial Highlights (Standalone)

Axis Sec Axis Sec Var QoQ growth YoY growth

(Rs. cr) Q2FY22 Q1FY22 Q2FY21
Estm (%) (%) (%)

Volume growth (% yoy) 11.0 13.0 -200 bps 5.0 +600 bps (8.0) +1900 bps

Net Sales 1,344 1,334 0.7 1,157.9 16.1 1,278 5.2

Gross Profits 895 897 (0.1) 798.1 12.2 868 3.1

Gross Margin (%) 67 67 -56 bps 68.9 -231 bps 68 -132 bps

Staff costs 105 93 12.1 95.0 10.2 97 8.4

Ad spends 185 191 (2.9) 160.2 15.7 164 12.7

Other operating expenses 213 218 (2.0) 195.9 8.8 206 3.7

EBITDA 401 403 (0.5) 355.2 12.8 409 (2.1)

EBITDA Margin (%) 29.8 30.2 -37 bps 30.7 -86 bps 32 -222 bps

Depreciation 45 45 (1.1) 44.7 0.4 46 (2.6)

Interest 2 2 - 1.5 (2.6) 2 (17.6)

Other Income 7 6 12.2 5.2 25.0 8 (14.0)

PBT 361 362 (0.2) 314.2 14.9 369 (2.2)

Tax rate (%) 25.4 25.4 1 bps 25.8 -35 bps 25.7 -27 bps
PAT 269 271 (0.5) 233.2 15.4 274 (1.8)

EPS (Rs.) 9.9 9.9 (0.5) 8.6 15.4 10.1 (1.8)

Axis Sec Axis Sec Var QoQ growth YoY growth

Q2FY22 Q1FY22 Q2FY21
Estm (%) (%) (%)

Profitability Analysis (%)

Gross Margin 66.6 67.2 -56 bps 68.9 -231 bps 67.9 -132 bps

EBITDA Margin 29.8 30.2 -37 bps 30.7 -86 bps 32.0 -222 bps

PAT Margin 20.0 20.3 -25 bps 20.1 -12 bps 21.5 -143 bps

Cost Analysis (%)

COGS 33.4 32.8 56 bps 31.1 231 bps 32.1 132 bps

Staff Costs 7.8 7.0 79 bps 8.2 -41 bps 7.6 23 bps

A&P Spends 13.8 14.3 -51 bps 13.8 -4 bps 12.9 92 bps

Other Expenses 16.7 16.3 40 bps 16.7 0 bps 16.1 61 bps

Source: Company; Axis Securities

2
Financials (Standalone)
Profit & Loss (Rs Cr)
Y/E Mar FY21 FY22E FY23E FY24E
Net sales 4,810 5,087 5,576 6,087
Growth, % 7.2 5.8 9.6 9.2
Other income 31 32 34 36
Total income 4,841 5,119 5,609 6,123
Raw material expenses (1,549) (1,720) (1,866) (2,028)
Employee expenses (366) (395) (432) (472)
Other Operating expenses (1,417) (1,530) (1,665) (1,808)
EBITDA 1,510 1,474 1,647 1,815
Growth, % 25.6 -2.4 11.7 10.2
Margin, % 31.4 29.0 29.5 29.8
Depreciation (183) (181) (180) (188)
EBIT 1,327 1,293 1,467 1,627
Growth, % 32.2 -2.6 13.5 10.9
Margin, % 27.6 25.4 26.3 26.7
Interest paid (7) (7) (8) (8)
Other Non-Operating Income 30 31 32 33
Pre-tax profit 1,350 1,316 1,492 1,652
Tax provided (315) (336) (380) (421)
Net Profit 1,035 981 1,111 1,230
Growth, % 26.8 -5.3 13.3 10.7
Net Profit (adjusted) 1,035 981 1,111 1,230
Unadj. shares (cr) 27 27 27 27
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

As at 31st Mar FY21 FY22E FY23E FY24E
Cash & bank 533 796 859 1,229
Debtors 248 237 264 292
Inventory 272 322 302 376
Loans & advances 452 478 524 572
Total current assets 1,511 1,838 1,954 2,474
Investments 19 19 19 19
Net fixed assets 1,200 1,099 1,020 932
Total assets 2,724 2,950 2,987 3,419

Current liabilities 1,008 1,237 1,212 1,463

Total current liabilities 1,008 1,237 1,212 1,463
Total liabilities 1,013 1,242 1,217 1,468
Paid-up capital 27 27 27 27
Reserves & surplus 1,684 1,681 1,743 1,924
Shareholders’ equity 1,711 1,708 1,770 1,951
Total equity & liabilities 2,724 2,950 2,987 3,419
Source: Company, Axis Securities

3
Cash Flow (Rs Cr)
Y/E Mar FY21 FY22E FY23E FY24E
Pre-tax profit 1,350 1,316 1,492 1,652
Depreciation 183 181 180 188
Change in working capital -118 164 -78 101
Total tax paid -315 -336 -380 -421
Cash flow from operating activities 1,100 1,326 1,213 1,519
Capital expenditure -70 -80 -100 -100
Change in investments 0 0 0 0
Cash flow from investing activities -70 -80 -100 -100
Free cash flow 1,030 1,246 1,113 1,419
Equity raised/(repaid) 0 0 0 0
Dividend (incl. tax) -918 -984 -1,049 -1,049
Cash flow from financing activities -918 -984 -1,049 -1,049
Net change in cash 112 263 64 370
Opening cash balance 421 533 796 859
Closing cash balance 533 796 859 1,229
Source: Company, Axis Securities

Ratio Analysis (%)

FY21 FY22E FY23E FY24E
Per Share data
EPS (INR) 38.1 36.1 40.9 45.2
Growth, % 26.8 (5.3) 13.3 10.7
Book NAV/share (INR) 62.9 62.8 65.1 71.7
FDEPS (INR) 38.1 36.1 40.9 45.2
CEPS (INR) 44.8 42.7 47.5 52.2
CFPS (INR) 39.3 47.6 43.4 54.7
DPS (INR) 28.0 30.0 32.0 32.0
Return ratios
Return on assets (%) 39.0 34.7 37.6 38.5
Return on equity (%) 60.5 57.4 62.8 63.1
Return on capital employed (%) 62.7 57.4 64.0 66.2
Turnover ratios
Asset turnover (x) 4.1 4.9 6.2 7.5
Sales/Total assets (x) 1.8 1.8 1.9 1.9
Sales/Net FA (x) 3.8 4.4 5.3 6.2
Receivable days 18.8 17.0 17.3 17.5
Inventory days 20.6 23.1 19.8 22.5
Payable days 63.1 76.3 63.5 75.3
Liquidity ratios
Current ratio (x) 1.5 1.5 1.6 1.7
Quick ratio (x) 1.2 1.2 1.4 1.4
Interest cover (x) 182.8 174.6 194.3 211.1
Dividend cover (x) 1.4 1.2 1.3 1.4
Net debt/Equity (%) (31.1) (46.6) (48.6) (63.0)
Valuation
PER (x) 40.3 42.5 37.5 33.9
Price/Book (x) 24.4 24.4 23.6 21.4
Yield (%) 1.8 2.0 2.1 2.1
EV/Net sales (x) 8.6 8.0 7.3 6.6
EV/EBITDA (x) 27.3 27.8 24.8 22.3
EV/EBIT (x) 31.0 31.6 27.8 24.9
Source: Company, Axis Securities

4
 Colgate Palmolive Chart and Recommendation History

(Rs)

Date Reco TP Research

09-Sep-20 BUY 1,565 Initiating Coverage
22-Oct-20 BUY 1,565 Result Update
21-Dec-20 BUY 1,745 Company Update
31-Dec-20 BUY 1,745 New Year Pick - 2021
29-Jan-21 BUY 1,745 Result Update
30-Jul-21 BUY 1,875 Result Update
26-Oct-21 BUY 1,765 Result Update

. Source: Axis Securities

5
About the analyst

Analyst: Suvarna Joshi

Contact Details: suvarna.joshi@axissecurites.in

Sector:FMCG, Consumption sector, Sp. Chemicals, Mid-Caps

Analyst Bio: Suvarna Joshi is MBA (Finance) from Mumbai University with about 10years of experience in
Equity market and research.

About the analyst

Analyst: Dhananjay Choudhury

Contact Details: dhananjay.choudhury@axissecurites.in

Sector: FMCG & Retail

Analyst Bio: Dhananjay Choudhary is a Chartered Accountant and a CFA Level III candidate. He is part of
the Axis Securities Research Team

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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