Results Review For Colgate Palmolive, Oberoi Realty, Federal Bank, Vinati Organics

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Colgate (NS: COLG ) Palmolive: Colgate’s 4QFY21 revenue and EBITDA was ahead of our as well as street’s expectation. Net revenue grew by 20% YoY (HSIE 16%) and maintained a two-year CAGR at ~5.5%. Volume growth was ~16% (HSIE 12%). Personal care growth remained robust, led by new launches and accelerating demand. The company saw strong performance across channels, especially in MT and e-comm. Toothpaste market share was maintained despite rising competition. Gross margin expansion remained strong (price hike, premiumisation and lower mix of toothbrush), increasing by 300bps YoY to ~68%. A&P declined by 4% (despite saving in 1HFY21), leading to a sharp EBITDA margin expansion of +800bps YoY to 33% (HSIE 400bps expansion). Colgate’s margin expansion is contrary to other consumer companies, which are witnessing a margin decline. Entry into new categories and expansion of existing brands will continue to drive growth for Colgate. Revenue contributions from new launches would increase in the coming years (as of now 2-3%) as most of them are scalable and not seeing cannibalisation. We maintain EPS estimates for FY22/FY23. We value Colgate at 42x P/E on Mar-23E EPS and derive a target price of INR 1,772. Maintain ADD.

Oberoi Realty (NS: OEBO ): Carrying forward the momentum in residential real estate from the previous quarter, Oberoi Realty (ORL) registered pre-sales volume of ~1.1msf (8.3x/2.1x YoY/QoQ) in 4QFY21. Booking (NASDAQ: BKNG ) value also jumped to INR 19.6bn during the quarter (vs INR 2.3/9.7bn in 4QFY20/3QFY21). However, collections dipped sequentially to INR 6.4bn from INR 7.4bn in 3QFY21. Notwithstanding the near washout of April/May, we expect ORL to deliver strong sales in FY22 as project/phase launches in Borivali, Goregaon and Thane remain on track. Board passed an enabling resolution to raise up to INR 35bn through NCD/equity instruments. We maintain BUY on ORL with a target price of INR 692/sh (vs INR 697/Sh), as it is better placed to take advantage of the sectoral tailwinds. We increase our FY22 EPS estimate by 40% to account for deferment of revenue recognition in the Three Sixty West project.

Federal Bank (NS: FED ): Federal Bank’s (FB) 4QFY21 earnings were ahead of our estimates on account of lower-than-expected provisions. NIM remained steady with funding cost tailwinds offsetting yield compression (interest reversals, re-pricing etc.). FB’s asset quality continues to remain resilient with slippages and restructured portfolio, well within management guidance and significantly better than peers. However, the complete run-down of the COVID buffer was disappointing, resulting in us having to raise our FY22 credit cost forecasts. We revise our FY22/FY23 earnings estimates downwards by 3.9%/1.2% on account of higher provisions and lower loan growth. Maintain BUY with revised TP of INR97.

Vinati Organics Ltd (NS: VNTI ): Our SELL recommendation on Vinati Organics with a discounted cash flow-based target price of INR 1,320 (WACC 10%, terminal growth 3.5%) is driven by a shift in the revenue mix towards lower-margin Iso Butyl Benzene (IBB) and Butyl Phenol as compared to ATBS, which has a higher margin. In the absence of a new product pipeline, we believe current valuations are high at ~45/35x FY22/23E EPS. 4Q EBITDA/PAT was 14/10% above estimates, owing to a 20% rise in revenue, offset by higher-than-anticipated operating expenses and lower-than-anticipated other income.

HG Infra: HG Infra (HG) reported revenue/EBITDA/APAT at INR 10.3/1.7/1.0bn, beating our est. by 22/23/32%. The cost escalation clause in the contracts allowed HG to protect margins (16%, in line with est.), against higher commodity prices. Working capital also improved sharply to 71 days from 104 days in Mar-20. Order inflow came in at INR 24.6bn during the quarter, taking the order book (OB) to INR 70.4bn (~2.8x FY21 revenue). Labour availability has fallen to 70-75%. Management is hopeful of normalcy by the end of Jun-21 and has guided for 25-30% top-line growth, INR 5bn of EBITDA and INR 50-60bn of orders. We increase our FY22/FY23 est. to factor in the robust quarter and maintain BUY with increased SOTP-based TP of INR 515/Sh (EPS upgrade by 22/19% for FY22/23 and HAM 1x P/BV), valuing the EPC business at 10x Mar-23E EPS.

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  • Pritis Mohanty @Pritis Mohanty
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  • Pritis Mohanty @Pritis Mohanty
    BUY 85-87 TARGET 100 , STOP LOSS 81
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