634995453625137780_Colgate Palmolive - Re-Iterate Accumulate Mar 21 2013

7/30/2019 634995453625137780_Colgate Palmolive - Re-Iterate Accumulate Mar 21 2013

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AnalystNilesh [email protected]

Colgate-Palmolive India Limited(Colgate)

Re-iterating- ACCUMULATE

21 March 2013


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Shareholding pattern Relative stock performance (Mar12=100)

Source: Company , Bloomberg, Destimoney Research

Colgate- Re-iterating ACCUMULATEACCUMULATE

TARGET : ` ` ` 1,380CMP : ` ` ` 1,323

Key DataBloomberg Code CLGT IN

NSE Code COLPAL

BSE Code 500830

Sector Oral Care

Industry FMCG

Face value ( ` per share) 1

Book value ( ` per share) 32

Dividend yield 1.9%

52 Wk.(H/L) 1579.90/1025

Market Cap. ( ` mn) 179,864

( ` ` ` ` mn) FY11 FY12 FY13E FY14ENet Revenue 22,861 26,932 30,461 34,867

EBITDA 5,147 5,815 6,415 7,380

EBITDA Margin 22.5% 21.6% 21.1% 21.2%

EPS ( ` per share) 29.6 32.8 36.0 41.0

EV/EBITDA 34.3 30.3 27.5 23.9

EV/ Sales 6.5 5.8 5.1 4.5

P/E (x) 44.7 40.3 36.7 32.2

Price Performance CY10 CY11 CY12 YTD

Absolute 35% 17% 62% -16%

Relative 17% 42% 34% -11%

Dec-12 Sep-12 Jun-12 Mar-12

Promoters 51% 51% 51% 51%

FII 22% 21% 21% 20%DII 5% 6% 6% 7%

Bodies Corporate 1% 1% 1% 1%

Others 21% 21% 21% 21%

Total 100% 100% 100% 100%85

100

115

130

145

Mar-12 May-12 Jul-12 Aug-12 Oct-12 Dec-12 Jan-13 Mar-13

Colgate NIFTY


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Colgate witnessed consumption slow down pressure, recording mere 9% YOY volume growth in ninemonth ended Dec 31 2012. Revenue growth of 17% in this period was therefore balanced unlikeprevious quarters of higher contribution by volume.

However, Colgates volume market share in tooth paste segment increased to 54.2% in during Jan-Dec12 period from 52.4% during same period in last year.

Similarly the company strengthened its position in tooth brush category with 39.5% share, which isnearly 370 bps improvement in one year.

In the Mouthwash category, the Company registered a volume market share of 26.7% in Jan12 Dec12as compared to 27.4% in Dec11- Nov12 period.

The company has a plan of increasing penetration of its oral care products in rural India. However, thecompetitive activity has also increased recently with new launches from HUL, GSK Consumer, Dabur andHimalaya Healthcare. We believe the increasing competition augers well for development of thesecategories and increase the awareness among consumers.

With long term growth drivers such as gradual conversion from tooth powder to tooth paste, increasingpenetration in rural market and premiumisation of urban market, we expect Colgate to continue itsgrowth profile with new product launches while widening its distribution.

At CMP, we believe that stock is trading with premium valuation as compared to its peers and hence wecontinue our ACCUMULATE rating on Colgate with a revised target price of ` ` ` 1,380 per share.

Colgate- Short term pain, long term growth drivers intact


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Source: Company

Quarterly Revenue and Volume growth

Marred by consumption slow down and higher base in same period previous year, the company witnessedlower volume growth in Q3FY13.

0%

6%

12%

18%

24%

Q1 FY11 Q2 FY 11 Q3 FY 11 Q4 FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13E

Volume Growth (YOY) Revenue Growth (YOY)

Lower volume growth resulted in an average revenue growth in Q3FY13


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Source: Company, Destimoney Research

0%

7%

14%

21%

28%

Q 1 F Y 1 0

Q 3 F Y 1 0

Q 1 F Y 1 1

Q 3 F Y 1 1

Q 1 F Y 1 2

Q 3 F Y 1 2

Q 1 F Y 1 3

Q 3 F Y 1 3

Ad- Expenses as % of Revenue Employee Exp as % of Revenue

Other Exp as % of Revenue

Operating Expense Movement

Gross margin improved on QOQ basis, however was lower on YOY basis.

The company carried out Oral health month, a promotional event, in Oct-Nov12 period. Previous year theevent was organized in Dec11-Jan12 period.

Higher operating costs diluted impact of increased gross margins resulting inlower EBIDITA margin on QOQ basis

55%

60%

65%

70%

75%

5%

13%

21%

29%

37%

Q 1 F Y 1 0

Q 3 F Y 1 0

Q 1 F Y 1 1

Q 3 F Y 1 1

Q 1 F Y 1 2

Q 3 F Y 1 2

Q 1 F Y 1 3

Q 3 F Y 1 3

EBITDA Margin (%)- LHS Gross Margin (%) - RHS

Quarterly Margin Movement


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Quarterly and Nine Months Performance

Higher tax out go impacted PAT margin negatively in Q3FY13

( ` ` ` mn) Q3FY13 Q3FY12 Change % 9MFY13 9MFY12 Change %

Total Operating Income 7,838 6,898 13.6% 23,323 19,931 17.0%

COGS 3,045 2,651 9,280 7,755

Employee Cost 631 534 1,798 1,556

Ad & Promotional Exp 999 1,075 2,725 2,852

Other Exp 1,664 1,145 4,638 3,551

EBIDTA 1,499 1,493 0.5% 4,882 4,218 15.7%

Interest & Fin. Charges 0 6 0 17

Depreciation 113 99 324 293

Other Income 150 97 54.4% 411 330 24.5%Exceptional Items 0 0 0 82

PBT 1,536 1,485 4,969 4,156

Tax 393 330 1,200 999

% of PBT 25.6% 22.2% 24.2% 24.0%

PAT 1,143 1,155 -1.0% 3,768 3,157 19.4%EPS ( ` per share) 8.4 8.5 27.7 23.2

Gross Margin 61.2% 61.6% 60.2% 61.1%

Operating Margin 19.1% 21.6% 20.9% 21.2%

Net Margin 14.6% 16.8% 16.2% 15.8%


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0%

15%

30%

45%

60%

2010 2011 2012 2013YTD

Colgate Competitor 1 Competitor 2

Toothpaste market share Rural India

Colgate to focus on strengthening its position in rural India for next two three years

0%

10%

20%

30%

40%

2010 2011 2012 2013YTD

Colgate Competitor 1 Competitor 2 Competitor 3

Toothbrush market share Rural India

Growth Drivers Plan of Action

68% of population lives in rural India 748mnconsumers

Toothpaste category penetration in rural areas is 61%

Per capita consumption toothpaste in rural population isonly half of urban

Directly reaching Mom & Pop stores through a VanDistribution Model

To double its coverage in rural areas in the next threeyears

New store coverage

Increased assortment

Improved visibility


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while competitive activity is increasing in the premium segmentmeanwhile educating the consumer

Recent Launches in Tooth Paste Segment

Himalaya Complete Care Complete Oral Care with

Antioxidants

FocusToothpaste

GSK -Sensodyne

GSK- Parodontax

Dabur - Super Babool + Salt

Instant relieffrom sensitivity

Address problemof bleeding gum

Instant relief from

sensitivity + Repair

Antibacterial powerto fight against germs

Colgate -Sensitive Pro-relief Instant relieffrom sensitivity

HUL - Pepsodent ExpertProtection Sensitive

FocusToothpaste

Colgate -Total Pro GumHealth

Address problemof bleeding gum

Recently all FMCG majors have entered inpremium/specialised oral care segments. This is expectedto increase the awareness among consumer which inturn would develop these categories.The sensitive segment is growing at 45% rate.According to GSK consumer management, the averageincidence of bleeding gums is 33% in India and hencethe company has launched Parodontax toothpaste fromits parent portfolio.There have been rumors about P&Gs entry in India withits Oral B / Crest brands in Indian tooth paste market.



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With long term growth drivers such as gradual conversion from tooth powder to tooth paste, increasingpenetration in rural market and premiumisation of urban market, we expect Colgate to continue its growthprofile with new product launches while widening its distribution.

The companys net margins would witness impact of higher tax outgo due to reduced tax benefits at itsBaddi plant in Himachal Pradesh.


Financial Performance

12%

15%

18%

21%

24%

8,000

17,000

26,000

35,000

44,000

FY12 FY13E FY14E FY15E

` m n

Revenue - LHS Operating Margin (RHS) Net Margin (RHS)

12.9%CAGR

We expect Colgate to grow at 12.9% CAGR over the next three years


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Source: Company, Bloomberg,Destimoney Research

We remain positive on Colgates growth potentialwith consumer consistently shifting from toothpowder to tooth paste.

In current macro environment, we prefer companies

with good earnings visibility as part of investmentportfolio and Colgate is one of such companies.

At CMP, the stock trades at 36.7 and 32.2 timesFY13 and FY14 earnings respectively, near its fairvalue.

Therefore we re-iterate our ACCUMULATE ratingon Colgate Palmolive India Limited with a revisedtarget price of ` ` ` 1,380 per share.

Relative stock performance (Mar12=100)

Valuation and recommendation

Parameters FY11 FY12 FY13E FY14E

EPS(` per share) 29.6 32.8 36.0 41.0

P/E (x) 44.7 40.3 36.7 32.2

P/B 46.8 41.3 37.3 33.6

ROE 105% 103% 101% 104%

ROCE 100% 94% 92% 96%

EV/EBIDTA 34.3 30.3 27.5 23.9

EV/ Sales 6.5 5.8 5.1 4.5

85

100

115

130

145

Mar-12 May-12 Jul-12 Aug-12 Oct-12 Dec-12 Jan-13 Mar-13

Colgate NIFTY


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Income Statement Balance Sheet


Summary Financials

( ` ` ` ` mn) FY11 FY12 FY13E FY14E

Net Revenue 22,861 26,932 30,461 34,867

Total Expenditure 17,715 21,117 24,046 27,487

EBIDTA 5,147 5,815 6,415 7,380

Interest & Fin. Charges 16 15 0 0

PBDT 5,130 5,800 6,415 7,380

Depreciation 342 393 425 473

Other Income 412 477 500 530

PBT 5,199 5,884 6,490 7,436

Tax 1,174 1,419 1,590 1,859PAT 4,026 4,465 4,900 5,577

EPS ( ` per share) 29.6 32.8 36.0 41.0

Ratios FY11 FY12 FY13E FY14E

Gross Margin 61.9% 61.0% 60.5% 60.6%Operating Margin 22.5% 21.6% 21.1% 21.2%

Net Margin 17.6% 16.6% 16.1% 16.0%

ROE 104.8% 102.5% 101.5% 102.2%

( ` ` ` ` mn) FY11 FY12 FY13E FY14E

Share Capital 136 136 136 136

Reserves and Surplus 3,705 4,218 4,692 5,212

Shareholder's Fund 3,841 4,354 4,828 5,348

Other Non-Current Liabilities 278 308 312 312

Total Non-Current Liabilities 4,118 4,662 5,141 5,660

Trade Payables 3,786 3,690 4,186 5,081

Other Current Liabilities 6,840 8,280 10,290 11,778

Total Current Liabilities 10,625 11,971 14,477 16,859

TOTAL LIABILITIES 14,744 16,633 19,617 22,520Tangible Assets (Gross) 5,798 6,132 7,132 7,632

Accumulated Depreciation 3,248 3,587 4,013 4,486

Tangible Assets(Net ) 2,550 2,544 3,119 3,146

Capital Work in Progress 82 694 194 94

Other Non Current Assets 479 700 700 700Current Assets 11,464 12,574 15,483 18,459

Deferred Tax Assets 168 121 121 121

TOTAL ASSETS 14,744 16,633 19,617 22,520


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Source: Company, Bloomberg, Destimoney Research^ For GSK Consumer Healthcare fiscal year is a calendar year, hence the data is taken for corresponding calendar year

CompanyCMP Revenue( ` ` ` mn) ROE EPS P/E EV/EBIDTA

(Mar 21) FY12 FY12 FY13E FY14E FY13E FY14E FY13E FY14E

HUL 461 234,363 88% 15.2 16.7 30.4 27.6 23.4 20.7

Dabur 134 53,054 45% 4.4 5.3 30.4 25.4 22.6 19.0

Colgate Palmolive (India) 1,323 26,932 103% 36.0 41.0 36.7 32.3 27.5 23.9GSK ConsumerHealthcare^ 4,152 30,794 32% 120.4 141.6 34.5 29.3 28.7 24.9

Peer Group Comparison


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Colgate is a focused oral care player, deriving major revenue from toothpaste business. Increasingcompetition in this business may result in price war amongst the players. This might lead to significantcorrection in the margins of the company.

Any sharp price rise in key raw material like Sorbitol would impact the margins of the company.

The company needs to constantly invest to protects its brand from me-too products in the market.

Key risks


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634995453625137780_Colgate Palmolive - Re-Iterate Accumulate Mar 21 2013

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