Reviews
In this edition, we have reviewed Colgate-Palmolive (India) Ltd. and Power Grid Corporation of India We suggest our reader-investors to HOLD Colgate-Palmolive (India) Ltd. and Power Grid Corporation of India.
We had recommended Colgate- Palmolive (India) in Volume 36, Issue No. 17 dated July 19 to August 1, 2021 under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹1,729. We had recommended this stock on the basis of returns on ROE and ROCE of 75.1 per cent and 92 per cent, respectively. Colgate-Palmolive India is engaged in manufacturing and trading of toothpaste, tooth powder, toothbrush, mouth wash and personal care products. It specialises in the production, distribution and provision of household, healthcare, personal care and veterinary products.
It has numerous subsidiary organisations spanning 200 countries, but it is publicly listed in three of them – the United States, India and Pakistan. Looking at the financial performance of the company, it has given net sales of ₹1,271.29 crore in Q2FY22 from ₹1,224.21 crore in Q2FY21 i.e. growth of 3.85 per cent. The operating profit for Q2FY22 stands at ₹386.23 crore as compared to Q2FY21 which was ₹380.49. The net sales have seen a jump and risen to ₹252.33 crore with an increase of 1.6 per cent as related to ₹248.36 crore in Q2FY21. In terms of annual consolidated financial performance, the company posted net sales and operating income for FY21 at ₹2,032.90 crore, up by 15.52 per cent from ₹1,759.84 crore in FY20.
The operating profit ascended by 40.77 per cent from ₹378.32 crore in FY20 to ₹532.55 crore in FY21. Consequentially, net profit climbed 51.13 per cent from ₹288.23 crore in FY20 to ₹435.61 crore in FY21. The company continues to invest in its recent innovations – Colgate special toothpaste for diabetics and Colgate Vedshakti mouth spray. In oral care, it has launched Colgate Gum Expert, an advanced form of toothpaste that has curcumin extracts taken from turmeric, which is known for its healing properties. Inflationary headwinds could weigh on margins as crude prices remain high, thus impacting packaging costs majorly.
The company has continuously been maintaining a healthy dividend payout of 91.26 per cent. Its focus has been on e-commerce channels where it has already seen considerable traction. It has also tied up with e-retailers like 1 mg and has been working on new product launches under its premium portfolio based on consumer preferences in urban areas. Also, it has a good return on equity (ROE) track record for three years of 59.46 per cent, consecutively. The company is almost debt-free. Hence, we recommend HOLD.
We had recommended Power Grid Corporation of India in Volume 36, Issue No. 17 dated July 19 to August 1, 2021 under the ‘Analysis’ segment. The recommended price for the stock was ₹172.80. We had recommended this stock on the basis of reforms-linked new power distribution sector. Also, Power Grid Corporation has been regularly undertaking assignments in various emerging business areas and because it has undertaken pilot projects in smart grid in distribution and grid-scale battery storage.
It is a listed company with 51.34 per cent holding of the government while the balance is held by institutional investors and the public. Power Grid Corporation of India is principally engaged in planning, implementation, operation and maintenance of inter-state transmission system (ISTS), telecom and consultancy services. Analysing the financial performance of the company in the recent quarter, on a consolidated quarterly basis the net sales and other operating income was recorded at ₹20,483.46 crore in Q2FY22 as compared to ₹18,987.08 crore in Q2FY21, giving a rise of 7.88 per cent. The operating profited ascended 6.24 per cent from ₹18,531.98 crore in Q2FY21 to ₹17,443.67 crore in Q2FY22.
Net profit of Q2FY22 was recorded at ₹9,328.90 crore as against net profit of ₹5,038.15 crore reported in Q2FY21, yielding a 85.17 per cent jump. On the annual front the net sales gained by 5.02 per cent to ₹39,639.79 crore in FY21 over FY20. The operating profited scaled 6.82 per cent in FY21 to ₹36,176.85 crore from ₹33,867.66 crore in FY20. The net profit climbed 8.41 per cent to ₹11,821.76 crore in FY21 as compared to net profit of ₹10,904.27 crore reported in FY20. The company is India’s largest power transmission utility with transmission lines of 1,70,724 km and 4,54,350 MVA of transformation capacity. It transmits about 50 per cent of the total power generated in India to its transmission network.
The company has also diversified into smart metering and is also eyeing new avenues like smart metering and distribution network strengthening, for which it plans to invest ₹250 billion over the next 3-4 years. The company’s move to transfer its telecom business (POWERTEL) to a wholly-owned subsidiary remains on track and is expected to be completed by the end of FY22. It is also venturing into international long distance (ILD) bandwidth and data centres businesses which will form part of the telecom subsidiary. Separately, leveraging its strong expertise in transmission business, the company is said to be exploring opportunities in the battery storage space and will position itself as a battery energy storage system (BESS) developer. Hence, we recommend HOLD.
(Closing price as of Feb 07, 2022)