Accumulate Colgate Palmolive (India); target of Rs 1622: KRChoksey

KRChoksey's research report on Colgate Palmolive (India)

Colgate reported revenue increase of 5.2% YoY / 23.5% QoQ. Domestic net sales for the quarter reported 7.1% YoY growth. EBITDA margin expanded to 31.8% in Q2FY21 (from 26.4% in Q2FY20) primarily benefitting from Change in inventories to the tune of INR 599 Cr. Raw materials stood at 28.5% of sales (vs 28.8% of sales in Q2FY20). Employee cost was also on increase that grew 18.0% YoY. Purchase of stock in trade for the quarter however was higher at 8.1% of revenue (vs 5.1% in Q2FY20). Overall, EBITDA margin expanded sharply by 541 bps YoY / 224 bps QoQ. Consequently, Net Profit grew 12.3% YoY (+38.4% QoQ) due to lower cost of sales as total expenditure declined 2.5% YoY and lower interest expense that declined 24.5% YoY. Net Profit margin for the quarter expanded by 135bps YoY / 229 bps QoQ to 21.3%. The Board declared a first interim dividend for the FY2020-21 of INR 18 per share of Re 1 each (face value).

Outlook

We continue to apply multiple of 43.5x on FY22E EPS of INR 37.3 (previous EPS 34.1) and arrive at a revised target price of INR 1,622 per share (previous TP: INR 1,507 per share), an upside potential of 10.7% from CMP. Accordingly, we reiterate an “ACCUMULATE” rating on the shares of Colgate Palmolive.