Recommendation From Personal Care Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

COLGATE-PALMOLIVE (INDIA) LTD : SHINING AND SMILING

HERE IS WHY
✓Extraordinary ROE and ROCE
✓One of the most popular brands in the world
✓Best-in-class distribution network

Colgate-Palmolive (India) Ltd. is an industry-leading company operating in personal care products. It has been one of the most popular brands in India, especially when it comes to oral care products like toothpaste and toothbrush. The brand name is so strong that people consider ‘Colgate’ as a generic word for toothpaste. No wonder the oral care segment accounts for over 90 per cent of revenues for the company. Colgate-Palmolive (India) reported net sales of Rs 4,841 crore in FY21 as against Rs 4,525 crore in FY20, a growth of nearly 7 per cent. The sales were driven by the comeback of demand from urban areas.

Its EBIDTA stood at Rs 1,510 crore in FY21 as against Rs 1,202 crore in the previous year. That is a growth of 25.6 per cent. Also, the PAT grew by a whopping 26.8 per cent, jumping from Rs 816 crore to Rs 1,035 crore from FY20 to FY21, respectively. Such a strong financial position is aided by the company’s strategic framework that includes strengthening brand equity which in turn boosts customer loyalty, and continuously working on the innovation front to deliver value products. However, the cash flows from operating activities declined by almost 15.7 per cent from Rs 930 crore in FY20 to Rs 784 crore in FY21.

Net sales for the quarter ended March 21 stood at Rs 1,283 crore. That’s a growth of 4.1 per cent QoQ basis and 23 per cent YoY basis. The EBITDA was Rs 422 crore which saw growth of 13.74 per cent QoQ and 60.4 per cent YoY. The net profit number was Rs 315 crore, again a rise of 27 per cent QoQ and 54.45 per cent YoY. 

The company has a very strong brand proposition. Probably that is the reason why it has spent nearly 13 per cent of its revenue for advertisements – an amount of Rs 625 crore! It has brand penetration in the oral healthcare space like no other. The company has always come up with new and innovative products that meet the ever-evolving consumer needs.

This is reflected by the launch of new products such as Colgate Vedshakti mouth spray, Colgate special toothpaste for diabetics (people who are exposed to gum problems), new toothbrush series such as Zig Zag Turmeric and Super Flexi Salt, Palmolive hand wash, and many more. The expansion in the product portfolio was supported by best-in-class distribution network in place. These are some of the many reasons why Colgate-Palmolive (India) has maintained the leadership tag in toothpaste and toothbrush segments amidst challenging business conditions. The gross profit margin for FY21 stood at 67.8 per cent, a growth of 280 bps.

The primary driver has been increase in the prices and to some extent rise in exports. EBITDA margin surged up to 31.4 per cent, increasing by 460 bps from its previous year. The PAT margin improved by 334 bps, jumping to 21.37 per cent for FY21. On the returns front, the ROE stands at 75.1 per cent while the ROCE is 92 per cent. The company is almost debt-free. Also, the EPS has gone up to 38.1 from 30 in FY20. The management expects the challenging times to continue and shows conviction in its readiness to face the situation through its operational experience and expertise. We recommend our reader-investors to BUY this stock.