Recommendation BUY

CMP 1348.00

Target Price 1510.00

ISIN: INE259A01022 MAY 28th

, 2014

COLGATE-PALMOLIVE (INDIA) LTD Result Update (PARENT BASIS): Q4 FY14

STOCK DETAILS

Sector FMCG

BSE Code 500830

Face Value 1.00

52wk. High / Low (Rs.) 1522.95/1190.05

Volume (2wk. Avg ) 20000

Market Cap ( Rs in mn ) 183328.00

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY14A FY15E FY16E

Net Sales 35788.10 40082.67 44090.94

EBITDA 7143.30 8053.67 8742.17

Net Profit 5398.70 5430.62 5961.84

EPS 39.70 39.93 43.84

P/E 33.96 33.76 30.75

Shareholding Pattern (%)

1 Year Comparative Graph

COLGATE-PALMOLIVE (INDIA) LTD S&P BSE SENSEX

SYNOPSIS

Colgate Palmolive (India) Limited is India’s leading provider of scientifically proven oral care products with multiple benefits at various price points.

During the quarter, net profit jumps to Rs. 1323.00 mn against Rs. 1232.00 mn in the corresponding quarter ending of previous year, an increase of 7.39%.

Revenue for the quarter rose by 11.51% to Rs. 9272.80 mn from Rs. 8315.30 mn, when compared with the prior year period.

The Company posted a robust volume growth of 7% for the quarter and 9% for the full year in Toothpaste category.

Toothpaste category registered a volume market share of 57.1% for the period Jan’14-Apr’14, an increase of 170 basis points over the same period of the previous year.

The Company’s Toothbrush category registered a volume market share of 42.3% for Jan’14-Apr’14, an increase of 100 basis points over the same period of the previous year.

For the year ended March 31, 2014, net sales increased by 13% to Rs. 35788.1 mn as against Rs. 31638.1 mn in the previous year.

In March, 2014, the Company has declared a third interim dividend of Rs. 9/- per equity share of Re. 1/- each for the financial year ending March 31, 2014.

Commercial production of toothpaste has commenced on May 21, 2014 at Company's new manufacturing facility set up at Sanand, Gujarat.

Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 6% over 2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%)

Colgate-Palmolive (India) Ltd 1348.00 183328.00 39.70 33.96 30.56 2700.00

P&G Hygiene and Health Care Ltd 3850.00 124973.80 81.33 47.34 15.52 250.00

Dabur India Ltd 180.25 313101.60 3.85 46.64 19.62 175.00

HUL Ltd 561.00 1207108.90 17.88 31.22 45.16 1300.00

Recommendation & Analysis - ‘BUY’

Net sales for the fourth quarter of current financial year 2013-14, was Rs. 9272.80 mn, an 11.51% increase over

the same quarter of the previous year and Net profit after Tax of Rs. 1323.0 mn with Earnings per share of Rs.

9.73. For the year ended March 31st, 2014, net sales increased by 13% to Rs. 35788.1 mn as against Rs. 31638.1

mn in the previous year and Net profit after Tax (including exceptional item) of Rs. 5398.7 mn with Earnings per

share of Rs. 39.70, an increase of 9% over the previous year.

The Company posted a robust volume growth of 7% for the quarter and 9% for the full year in Toothpaste and

continued to enhance its leadership position in Toothpaste category by registering a volume market share of

57.1% for the period Jan’14-Apr’14, an increase of 170 basis points over the same period of the previous year.

The flagship brands “Colgate Dental Cream”, “Active Salt”, “Max Fresh” and “Colgate Total” along with the

recently launched “Visible White” have contributed to this growth. The Company further strengthened its

leadership position in the Toothbrush category by registering a volume market share of 42.3% for Jan’14-Apr’14,

an increase of 100 basis points over the same period of the previous year.

Colgate has, for the third consecutive year from 2011 to 2013, been ranked as India’s #1 Most Trusted Brand

across all categories by Brand Equity’s Most Trusted Brand Survey and is the only brand to feature in the top

three since the inception of the survey twelve years ago. Over FY2013-16E, we expect the company to post a

CAGR of 12% and 6% in its top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘COLGATE-

PALMOLIVE (INDIA) LTD’ with a target price of Rs. 1510.00 for medium to long term investment.

FINANCIAL HIGHLIGHTS (PARENT BASIS)

Results updates- Q4 FY14,

Colgate-Palmolive (India) Limited engages in the

manufacture and marketing of fast moving

consumer goods in India and internationally,

reported its financial results for the quarter ended

31st March, 2014.

Months Mar-14 Mar-13 % Change

Net Sales 9272.80 8315.30 11.51

PAT 1323.00 1232.00 7.39

EPS 9.73 9.06 7.39

EBITDA 2058.10 1807.40 13.87

The company net profit jumps to Rs. 1323.00 million against Rs. 1232.00 million in the corresponding quarter

ending of previous year, an increase of 7.39%. Revenue for the quarter rose by 11.51% to Rs. 9272.80 million

from Rs. 8315.30 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.9.73 a share during the quarter, registering 7.39% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 2058.10 million as against Rs. 1807.40 million in the

corresponding period of the previous year.

Expenditure :

During the quarter total expenditure cost raised

by 10 per cent an account of increase in material

consumed cost along with consideration of

advertising cost. Total expenditure in Q4 FY14 was

Rs. 7407.10 million as against Rs. 6741.50 million in

Q4 FY13. Other expenses are increased to Rs.

2166.80 million against Rs. 1889.80 million in the

corresponding period of the previous year.

Advertising cost is Rs. 994.60 million, and

Consumption of Raw Materials is Rs. 3512.00

million in Q4 FY14 are primarily attributable to

growth of expenditure.

Latest Updates

• In March, 2014, Colgate Palmolive (India) Ltd has declared a third interim dividend of Rs. 9/- per equity

share of Re. 1/- (face value) for the financial year ending March 31, 2014. The Company has paid first and

second interim dividends of Rs. 9 per share each paid in November, 2013 and December, 2013 respectively,

The Company has paid a total interim dividend Rs. 27 per share for the financial year ending March 31, 2014.

• The Company posted a robust volume growth of 7% for the quarter and 9% for the full year in Toothpaste

and continued to enhance its leadership position in Toothpaste category by registering a volume market

share of 57.1% for the period Jan’14-Apr’14, an increase of 170 basis points over the same period of the

previous year

• The Company further strengthened its leadership position in the Toothbrush category by registering a

volume market share of 42.3% for Jan’14-Apr’14, an increase of 100 basis points over the same period of the

previous year.

• Commercial production of toothpaste has commenced on May 21, 2014 at Company's new manufacturing

facility set up at Sanand, Gujarat. Further, the Company has announced that in the month of March 2014 the

new manufacturing facility was commissioned and fully tested. In the initial phase, the Company intend to

manufacture 15,000 MTs toothpaste from this manufacturing facility.

Company Profile

Colgate-Palmolive (India) Limited is India’s leading provider of scientifically proven oral care products with

multiple benefits at various price points. The range includes toothpastes, toothpowder, toothbrushes and

mouthwashes under the “Colgate” brand, as well as a specialized range of dental therapies under the banner of

Colgate Oral Pharmaceuticals. These have become an essential part of daily oral hygiene and therapeutic oral

care in India. The Company also provides a range of personal care products under the ‘Palmolive’ brand name.

Colgate has been ranked as India’s #1 Most Trusted Brand across all categories for four consecutive years from

2003 to 2007 and in 2011 and 2012 by Brand Equity’s Most Trusted Brand Survey. It is the only brand to be in

the top three from 2001-2012.

In November 2007, it acquired a 75% equity interest in Advanced Oral Care Products, Professional Oral Care

Products and SS Oral Hygiene Products, the company is the fastest growing and one of the oldest companies

catering to the personal care products. The company is regularly coming up with new products and has been a

consistent financial performer.

Products

• Oral care- Under this segment the company offers product like toothpastes, toothbrush, tooth powder &

tooth whitening products.

• Personal care -In this segment it offer products skin care, hair care, body wash, & shaving creams

• Household care- Under this segment it has launched brand AXIOM-a dish washing paste.

Financial Highlight (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance sheet as at March31st, 2013-2016E

FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 136.00 136.00 136.00 136.00

Reserves and Surplus 4759.92 5862.80 7211.24 8509.27

1. Sub Total - Net worth 4895.92 5998.80 7347.24 8645.27

Non Current Liabilities

Other Long term Liabilities 8.44 7.40 7.77 8.16

Long Term Provisions 349.00 248.60 218.77 236.27

2. Sub Total - Non Current Liabilities 357.44 256.00 226.54 244.43

Current Liabilities

Trade Payables 4666.20 5099.70 5405.68 5675.97

Other Current Liabilities 2501.80 2829.40 3084.05 3299.93

Short Term Provisions 646.41 703.60 745.82 783.11

3. Sub Total - Current Liabilities 7814.41 8632.70 9235.54 9759.00

Total Liabilities (1+2+3) 13067.77 14887.50 16809.33 18648.70

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 3826.19 6974.20 8292.04 9535.85

b) Non-current investments 371.35 371.30 389.87 401.56

c) Deferred Tax Asset 224.45 177.80 154.69 139.22

d) Long Term loans and advances 702.95 625.60 656.88 683.16

e) Other non-current assets 12.46 20.60 23.69 26.53

1. Sub Total - Non Current Assets 5137.40 8169.50 9517.16 10786.31

Current Assets

Current Investments 99.82 0.00 0.00 0.00

Inventories 1852.98 2257.40 2573.44 2848.08

Trade receivables 812.11 547.40 470.76 499.01

Cash and Bank Balances 4287.96 2869.50 3099.06 3285.00

Short-terms loans & advances 844.71 1027.00 1129.70 1208.78

Other current assets 32.79 16.70 19.21 21.51

2. Sub Total - Current Assets 7930.37 6718.00 7292.17 7862.39

Total Assets (1+2) 13067.77 14887.50 16809.33 18648.70

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 31638.10 35788.10 40082.67 44090.94

Other Income 499.20 503.20 478.04 497.16

Total Income 32137.30 36291.30 40560.71 44588.10

Expenditure -25070.00 -29148.00 -32507.05 -35845.93

Operating Profit 7067.30 7143.30 8053.67 8742.17

Interest 0.00 0.00 0.00 0.00

Gross profit 7067.30 7143.30 8053.67 8742.17

Depreciation -437.00 -507.50 -573.48 -630.82

Exceptional Items 0.00 643.80 0.00 0.00

Profit Before Tax 6630.30 7279.60 7480.19 8111.34

Tax -1662.80 -1880.90 -2049.57 -2149.51

Net Profit 4967.50 5398.70 5430.62 5961.84

Equity capital 136.00 136.00 136.00 136.00

Reserves 4759.90 5862.80 7211.24 8509.27

Face value 1.00 1.00 1.00 1.00

EPS 36.53 39.70 39.93 43.84

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 9007.30 8911.10 9272.80 9643.71

Other income 130.20 162.40 39.40 52.80

Total Income 9137.50 9073.50 9312.20 9696.51

Expenditure -7544.00 -7405.80 -7254.10 -7734.26

Operating profit 1593.50 1667.70 2058.10 1962.25

Interest 0.00 0.00 0.00 0.00

Gross profit 1593.50 1667.70 2058.10 1962.25

Depreciation -116.60 -120.50 -153.00 -159.12

Exceptional Items 0.00 -1.10 -61.50 0.00

Profit Before Tax 1476.90 1546.10 1843.60 1803.13

Tax -381.70 -417.80 -520.60 -513.89

Net Profit 1095.20 1128.30 1323.00 1289.24

Equity capital 136.00 136.00 136.00 136.00

Face value 1.00 1.00 1.00 1.00

EPS 8.05 8.30 9.73 9.48

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 36.53 39.70 39.93 43.84

EBITDA Margin (%) 22.34% 19.96% 20.09% 19.83%

PBT Margin (%) 20.96% 20.34% 18.66% 18.40%

PAT Margin (%) 15.70% 15.09% 13.55% 13.52%

P/E Ratio (x) 36.91 33.96 33.76 30.75

ROE (%) 101.46% 90.00% 73.91% 68.96%

ROCE (%) 153.28% 127.54% 117.42% 108.42%

EV/EBITDA (x) 25.32 25.26 22.38 20.59

Book Value (Rs.) 36.00 44.11 54.02 63.57

P/BV 37.45 30.56 24.95 21.21

Charts

Outlook and Conclusion

� At the current market price of Rs.1348.00, the stock P/E ratio is at 33.76 x FY15E and 30.75 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs. 39.93 and Rs.

43.84 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 6% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 22.38 x for FY15E and 20.59 x for FY16E.

� Price to Book Value of the stock is expected to be at 24.95 x and 21.21 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.1510.00 for Medium to Long term

investment.

Industry Overview

The Indian Fast Moving Consumer Goods (FMCG) sector is the fourth largest in the Indian economy and has a

market size of $13.1 billion. This industry primarily includes the production, distribution and marketing of

consumer packaged goods, that is those categories of products which are consumed at regular intervals.

The FMCG market is set to treble US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in

most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped

market potential.

� The Indian FMCG industry represents nearly 2.5% of the country’s GDP.

� The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the last 5 years driven by

rising income levels, increasing urbanization, strong rural demand and favourable demographic trends.

� The sector accounted for 1.9% of the nation’s total FDI inflows in April 2000- September 2012. Cumulative

FDI inflows into India from April 2000 to April 2013 in the food processing sector stood at Rs. 9,000.3 crore,

accounting for 0.96% of overall FDI inflows while the soaps, cosmetics and toiletries, accounting for 0.32% of

overall FDI at Rs. 3,115.5 crore.

� Food products and personal care together make up two-third of the sector’s revenues.

� Rural India accounts for more than 700 mn consumers or 70% of the Indian population and accounts for

50% of the total FMCG market.

� With changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $80

bn by 2026 in towns with population of up to 10 lakh.

� India's labor cost is amongst the lowest in the world, after China & Indonesia, giving it a competitive

advantage over other countries.

Household care

The fabric wash market size is estimated to be ~USD 1 billion, household cleaners to be USD 239 million, with

the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been growing at an

annual growth rate of 10 to 11% during the past five years

Personal Care (HPC)

The personal care products (PCP) market in India is estimated to be worth ~USD 4 bn p.a. Personal hygiene

products (including bath and shower products, deodorants etc.), hair care, skin care, colour cosmetics and

fragrances are the key segments of the personal care market.

Food & Beverages

Food processing industry is one of the largest industries in India, ranking fifth in terms of production, growth,

consumption, and export. The total value of Indian food processing industry is expected to touch USD 194 billion

by 2015 from a value of USD 121 billion in 2012, according to Indian Council of Agricultural Research (ICAR).

Expenditure on advertisements by FMCG Companies in 2013

Fast-moving consumer goods (FMCG) companies, a safe haven through most of the slowdown, have felt

consumption blues of late. While the annual revenues of these companies have increased 15-20 per cent, their

advertisement and sales promotions spends have raised 25-30 a year.

ITC, one of the biggest companies in the Indian FMCG space, spent Rs 806.65 crore on advertising in 2012-13,

against Rs 682.69 crore in 2011-12. At Rs 502.37 crore, Dabur India’s ad spends jumped 27 per cent in 2012-13.

In 2012-13, Hindustan Unilever spent Rs 3,231.88 crore on advertising and promotional activities, compared

with Rs 2,634.79 crore the previous financial year, a rise of 22.66 per cent. During the same period, Emami’s

spends rose 21.18 per cent to Rs 253.11 crore.

Government Policies and Regulatory Framework

Goods and Service Tax (GST): GST, which will replace the multiple indirect taxes levied on FMCG sector with a

uniform, simplified and single-pint taxation system, is likely to be implemented soon (the benefits are likely to

come in by the end of FY’14). The rate of GST on services is likely to be 16% and on goods is proposed to be 20%.

A swift move to the proposed GST may reduce prices, bolstering consumption for FMCG products.

Food Security Bill: The food security Bill has been passed recently by the Union Cabinet. As per the Bill, 5Kg of

food grains per person per month will be provided at subsidized prices from State Governments under the

targeted public distribution system.

FDI in retail: The decision to allow 51% FDI in multi brand retail and 100% FDI in single brand retail augers

well for the outlook for the FMCG sector. FMCG sector accounted for 1.9% of the nation’s total FDI inflows in

April 2000- September 2012. Cumulative FDI inflows into India from April 2000 to April 2013 in the food

processing sector stood at Rs. 9,000.33 crore, accounting for 0.96% of overall FDI inflows while that in the soaps,

cosmetics and toiletries was Rs. 3,115.54 crore in, accounting for 0.32%. The food processing sector attracted

FDI inflows of Rs. 6,198 crore during April 2009 to December 2012.

Relaxation of license rules: Industrial licenses are not required for almost all food and agro-processing

industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal

fats and oils as well as items reserved for exclusive manufacturing in the small-scale sector.

Conclusion

While the rural market certainly offers a big attraction to marketers, it would be naïve to think that any company

can enter the market without facing any problems and walk away with a sizable share. Distribution is the most

important variable in the marketing plans of most consumer goods manufacturers, because managing such a

massive sales and distribution network is in itself a huge task.

This sector will continue to see growth as it depends on an ever-increasing internal market for consumption, and

demand for these goods remains more or less constant, irrespective of recession or inflation. Hence this sector

will grow, though it may not be a smooth growth path, due to the present world-wide economic slowdown, rising

inflation and fall of the rupee. This sector will see good growth in the long run and hiring will continue to remain

robust.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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B. Anil Kumar Auto, IT & FMCG

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