Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities
Opinion on Result: Covid led lockdown led to a sharp dip of 7% yoy in revenues for Colgate with 8% yoy dip in volume. Personal care category has been one of the most impacted categories in 4Q due to lockdown (HUL BPC down by 14% yoy, Marico PCNO/VAHO down by 12/18% yoy, GCPL India business down 18% yoy and Gillette down 13% yoy). High employee costs (surprisingly up by 22% yoy and 17% qoq) and sustained investments behind A&P, impacted EBITDA margin (down 237bps yoy). Oral care being essential category will recover quickly at primary and secondary level. We continue to believe that Colgate's performance will be resilient in FY21.
Revenue: Revenue declined by 7% yoy (+6% in 4QFY19 and +4% in 3QFY20) vs our estimate of flat revenue. After seeing high impact of lockdown on personal care categories in 4Q, this number was not surprising. Volume declined by 8% yoy (+5% in 4QFY19 and +2% in 3QFY20). Given the loss of sales in the last 10 days of March (11% impact on qtr), we believe volume growth was around 3% pre-Covid for Colgate (inline with 3Q volume growth). All of the co's plants are operational now, which reflects that primary growth will be higher than secondary and offtake in the coming months.
GM was up by 9bps yoy (-57bps in 4QFY19 and +99bps in 3QFY20) to 64.7% (in line with our estimates).
Employee expenses were up by 22% while ASP/other expenses saw a decline of 1/10%. ASP acceleration was missing in FY19 (up 7% yoy) but it grew by 15/9% yoy in 9MFY20/FY20 . This reflects that management has stepped up aggression wrt new launches and on the marketing front.
EBITDAM was down by 237bps yoy to 24.5% (-127bps in 4QFY19 and -105bps in 3QFY20). EBITDA was down by 15% yoy (+1% in 4QFY19, flat in 3QFY20) as compared to expectation of +3% yoy.
Higher other income (+64% yoy) and lower taxes led to a growth in PAT by 3% yoy to Rs 2,042mn (est Rs 1,993mn).
- Long term debt for the co was repaid completely, it was Rs 777mn in FY19.
- Cash position of the co remains strong at Rs 4bn.
- NWC days was at negative 20 days vs. negative 35 days in FY19.
- Co declared a dividend of Rs 16/share, taking the total dividend for FY20 to Rs 28/share.
Valuation : At CMP 1,342, the stock is trading at a P/E of 42x and 37x on FY21E and FY22E. We have an ADD rating on Colgate with a TP of Rs 1,372 (38x Mar-22 EPS).
Shares of COLGATE-PALMOLIVE (INDIA) LTD. was last trading in BSE at Rs.1333.9 as compared to the previous close of Rs. 1351.6. The total number of shares traded during the day was 96551 in over 7555 trades.
The stock hit an intraday high of Rs. 1376 and intraday low of 1288.65. The net turnover during the day was Rs. 128516356.