Colgate Palmolive (India) - Focus on innovation and new launches - ICICI Securities

Domestic revenue growth of 10% was ahead of consensus estimates - likely case of maintaining market shares (HUL also reported double-digit growth in its oral care business). Volume growth was ~5%. Focus towards the naturals category, increasing brand visibility and step-up in innovation inspires confidence. We believe Colgate is benefitting from (1) a largely 'essential' portfolio, (2) presence across the price-benefit pyramid - helps capture any impact of downtrading and (3) strong distribution reach, especially in rural India which has been relatively less impacted. That said, weak macros are likely to impact premiumisation and delay the likely business plan to diversify in other home and personal care categories. Our stock rating gets upgraded a notch to ADD (from HOLD).

- Double-digit growth in domestic business: Revenue / EBITDA / PAT grew 7% / 17% / 25% respectively driven by accelerated growth in toothpastes. Domestic revenues grew 10% in 3Q with volume growth of 5% (our estimate). We note that this strong performance is being driven by various new product launches - Colgate Vedshakti franchisee extended to new categories like Mouth spray and Oil pulling, Asia's first toothpaste for Diabetics, expansion of Naturals toothbrush portfolio with Super Flexi Salt and Zig Zag Turmeric, Colgate Magik toothbrush for kids.

- Significant margin expansion: Gross margins expanded 400bps driven by favourable mix (higher salience of bigger packs, higher toothpaste shares versus toothbrush). Gross margin at 69.8% is one of the highest in India Consumer Staples. EBITDA margin expansion was lower at 250bps to 30.1% primarily due to cost saving initiatives (other opex down 240bps) being offset by higher ad-spends (up 360bps YoY; +38% on an absolute basis - to support various new launches) and higher staff costs (up 30bps, +13% YoY). We expect Colgate to be able to manage any near-term input cost inflation by price increases (5% growth in realisation) and rationalisation of ad-spends.

- Outlook: Management continues to focus on driving growth through (1) building brands and increasing household penetration, (2) innovation, (3) winning in emerging channels and (4) strengthening its go-to-markets.

- Valuations and risks: We increase our earnings estimates for FY22 by ~3%; modelling revenue / EBITDA / PAT CAGR of 8 / 12 / 14 (%) over FY20-23E. Upgrade to ADD with DCF-based revised target price of Rs 1,700. Key downside risk is lower-than-expected market share gains.

Shares of COLGATE-PALMOLIVE (INDIA) LTD. was last trading in BSE at Rs.1566.65 as compared to the previous close of Rs. 1544.6. The total number of shares traded during the day was 163035 in over 2810 trades.

The stock hit an intraday high of Rs. 1577 and intraday low of 1530.2. The net turnover during the day was Rs. 254833409.

Source : Equity Bulls

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