Result Update
July 26, 2014
Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Colgate-Palmolive India (COLPAL)
Hold
| 1672
12 months
2%
Volumes slow but dominance prevails!!!
What’s changed?
Target
EPS FY15E
EPS FY16E
Rating
Unchanged
Changed from |41.6 to |41.7
Changed from |47.8 to |47.9
Unchanged
Quarterly performance
Sales
EBITDA
EBITDA (%)
PAT
Q1FY15
950.6
193.7
20.2
134.9
Q1FY14 YoY (%)
844.6
12.6
165.3
17.2
19.2 101 bps
185.2
-27.2
Q4FY14 QoQ (%)
920.6
3.3
201.9
-4.1
21.8 -153 bps
132.3
2.0
Key financials
| Crore
Net Sales
EBITDA
PAT
EPS (|)
FY13
3,084.1
656.8
496.8
36.5
FY14
3,544.9
664.0
539.9
39.7
FY15E
4,122.9
805.7
567.7
41.7
FY16E
4,740.8
945.2
650.7
47.9
FY14
45.1
42.1
1.7
6.3
90.0
102.2
FY15E
39.1
40.1
2.0
5.4
79.0
102.6
FY16E
34.1
34.9
2.2
4.7
74.0
98.8
Valuation summary
P/E
Target P/E
Div. Yield
Mcap/Sales
RoNW (%)
RoCE (%)
FY13
44.7
45.8
1.7
7.2
101.5
125.2
Stock data
Particular
Market Capitalization (| Crore)
Total Debt (FY14) (| Crore)
Cash and Investments (FY14) (| Crore)
EV (| Crore)
52 week H/L
Equity capital
Face value
Amount
22,194.1
0.0
287.0
21,907.1
1699 / 1190
| 13.6 Crore
|1
Price performance
Colgate
Dabur
HUL
Gillette
1M
8.9
4.6
4.1
6.9
3M
12.8
9.3
7.8
19.5
| 1632
6M
25.8
19.1
13.5
6.7
12M
11.5
11.4
-9.4
1.0
Analyst
Sanjay Manyal
sanjay.manyal@icicisecurities.com
Parineeta Rajgarhia
parineeta.rajgarhia@icicisecurities.com
ICICI Securities Ltd | Retail Equity Research
• Colgate Palmolive reported slightly lower-than-expected revenue
growth at 12.6% to | 950.6 crore (I-direct estimate: | 960.5 crore) on
the back of lower volume growth of 5% vs. expectation of ~8%
• Margins, however, were higher-than-expected at 20.2% (I-direct
estimate: 18.9%) aided by lower raw material and employee
expenses
• Market share (January-June 2014) in toothpaste increased to 57% vs.
55.9% YoY while in toothbrush it increased to 42.6% vs. 41.2% YoY
Market share continues to strengthen!
Colgate Palmolive (CPIL) is the largest player in oral the care segment in
India with a market share (June, 2014) of 57% in toothpaste and 42.6% in
toothbrush category. In spite of Procter & Gamble’s (P&G) re-entry into the
toothpaste segment in India in June, 2013 (brand: Oral B), CPIL’s market
share has only strengthened. CPIL has increased its market share in
toothpaste from 54.7% in June, 2012 to 57.1% in April, 2014. Similarly,
the market share in toothbrush has also increased from 38.7% to 42.3%
for the same period. We believe the second largest player in the
toothpaste category, HUL, is losing its market share with Dabur India
inching share from ~10% to ~11% in the last two years. Further, regional
players like Vicco, Ajanta, Anchor, Smyle and Baidyanath have also
witnessed a loss in market share in toothpastes. The combined share of
all these regional brands has slipped to ~2% (2013) from more than 5%
two years ago and ~15% share 10 years back.
Advertisement & promotions continue to ride higher
In the last two years, Colgate has been very aggressive in its
advertisement & promotion (A&P) activity especially after P&G’s launch of
Oral-B toothpaste and GSK Consumer expanding its market presence in
the sensitive toothpaste category. The A&P expenditure for Colgate has
increased to 19.4% of sales in FY14 and 19% in Q1FY15 from 15-16%
earlier. We expect the company to maintain a higher A&P expense to
maintain its market share and push new launches. We have modelled A&P
expenses of 18.6% and 18% of sales for FY15E and FY16E, respectively.
Innovations at forefront
Over the years, Colgate has built an extensive oral care portfolio through
constant innovation, thereby offering products across the value pyramid
and within each sub-category (sensitive toothpaste, gum care toothpaste,
electric brush, kids brush, etc.). Lately, the company has been aggressive
on extension of its premium portfolio to capture up-trading consumers. In
FY14, it launched two varieties of toothpastes (Active healthy White, Max
Fresh Tea) and Slim Soft Toothbrushes. In June, 2014 CPIL launched Max
Protection Plus Sugar Acid Neutralizer toothpaste. Hence, with the
constant innovations and higher A&P spends, we believe Colgate would
continue to remain the dominant player and be the largest beneficiary of
increasing penetration levels in the country (currently at ~75%).
Earnings growth to remain healthy; maintain HOLD
Led by CPIL’s constant effort to innovate its portfolio and drive
premiumisation in oral care, we expect margins to improve to 19.8% by
FY16E aiding a healthy profitability growth of 15% CAGR (FY14-16E). We
value the stock on triangulated valuation method (DCF, EV/EBITDA and
price/sales) arriving at a target price of | 1672/share.
Variance analysis
Q1FY15 Q1FY15E Q1FY14 YoY (%) Q4FY14 QoQ (%)
950.6
960.5
844.6
12.6
920.6
3.3
Net Sales
Operating Income
6.3
8.5
15.1
-58.5
6.7
-6.4
Raw Material Expenses
Employee Expenses
SG&A Expenses
357.2
58.4
180.6
385.1
68.7
122.9
328.3
62.0
101.4
8.8
-5.8
78.1
365.9
43.4
99.5
-2.4
34.6
81.5
Other operating Expenses
167.1
209.4
202.8
-17.6
216.7
-22.9
EBITDA
EBITDA Margin (%)
Depreciation
193.7
20.2
16.6
182.8
18.9
13.4
165.3
17.2
19.2 101 bps
11.7
41.0
0.0
6.5
0.0
15.0
0.0
17.1
NA
-62.3
0.0
3.9
NA
63.7
PBT before exceptional
Exceptional Items
Tax Outgo
183.6
0.0
48.7
184.4
0.0
52.5
170.7
-70.6
56.1
7.6
NA
-13.2
190.5
6.2
52.1
-3.6
-100.0
-6.6
PAT
134.9
131.8
185.2
-27.2
132.3
2.0
5.0
8.0
9.0 -400 bps
NA
NA
NA
57.0
9.0
NA
11.0
NA
55.9 110 bps
7.0
57.1
NA
-10 bps
Volume Mkt Share (Toothbrush)
42.6
Source: Company, ICICIdirect.com Research
NA
41.4 120 bps
42.3
30 bps
Interest
Other Income
Key Metrics YoY growth (%)
Volume Growth overall
Volume Growth (Toothpastes)
Volume Mkt Share (Toothpaste)
201.9
-4.1
21.8 -153 bps
15.3
8.2
Comments
Revenue growth was led by ~5% growth in volumes and gain in market
share both in toothpaste and toothbrush.
Employee expenses declined by 5.8% YoY, aiding the margins
Led by the increasing competitive intensity by players as HUL & P&G and
new launches by Colgate during the quarter, marketing expenses have
witnssed a significant uptick.
Margins were supported by lower raw materials and employee cost.
Higher depreciation is on the back of commencement of new facilities in
Gujarat.
Colgate's tax rate increased by ~330 bps to 26.5% following the end of tax
exemptions at its production unit in Baddi
The decline in volume growth depicts the persisting slowdown in the
economy and increasing competition in the oral care segment
Led by sustained marketing initiatives of the company, it has been able to
strengthen its market share even in a slowing demand environment.
Change in estimates
(| Crore)
Sales
EBITDA
EBITDA Margin (%)
PAT
EPS (|)
Old
4,087.1
782.6
19.0
553.0
40.7
FY15E
New % Change
4,122.9
0.9
805.7
3.0
19.4
42 bps
567.7
41.7
2.6
2.6
Old
4,683.3
934.3
19.8
650.7
47.8
FY16E
New % Change
4,740.8
1.2
945.2
1.2
19.8
1 bps
650.7
47.9
Comments
We are revising our margins slightly upwards for FY15E as we believe the higher
number of new launches and higher marketing spends would drive premiumization at a
higher rate than expected earlier.
0.0
0.0
Source: Company, ICICIdirect.com Research
Assumptions
Toothpaste Vol. Growth(%)
Toothpaste Value Growth(%)
FY13
10.0
18.2
FY14
9.4
14.0
Toothbrush Vol. Growth(%)
Toothbrush Value Growth(%)
Raw Material/Sales %
Marketing Exp./Sales %
19.0
22.2
40.5
15.9
19.5
29.1
39.6
19.4
Current
FY15E
FY16E
9.4
8.8
14.8
13.9
17.5
20.4
38.7
18.6
15.0
19.0
39.5
18.0
Earlier
FY15E
FY16E
9.4
8.8
14.8
13.9
9.5
12.2
40.1
18.0
15.0
19.0
40.0
17.7
Comments
Sustained higher marketing spends would keep volume growth healthy
We expect value growth to remain strong following the revival in urban demand
and rate of premiumization
Increasing competition from P&G and HUL would keep ad-ex & sales promotion
higher through FY16E
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
Company Analysis
Sustained market share to keep revenue growth healthy at 15.6% CAGR
CPIL has successfully maintained its market leadership in the oral care
segment with 56% share by volume (2013) in the toothpaste category and
41.5% volume share (2013) in the toothbrush category. The nearest
competitors in the toothpaste and toothbrush categories are at almost
half the share of CPIL with 22.8% (2013) and ~28% (2013) share by
volume, respectively. With the ability to maintain the premium in its
market share and comprehensive oral care portfolio CPIL registered
strong revenue growth of 16.5% CAGR (FY08-13). Going ahead, we
believe that led by CPIL’s strong brand equity it would continue to
maintain its dominance in the segment and further boost its revenue
growth through increasing presence in rural India. Hence, we expect
healthy revenue CAGR of 15.6% in FY14-16E led by ~9% volume CAGR.
Exhibit 1: Revenue CAGR to remain healthy at 14.9% (FY13-16E)
21.3
13.8
15.0
15.8
19.6
14.5
13.2
15.7
14.9
25
17.1
16.3
12.6
15.0
20
15
10
Revenues in | crore (LHS)
5
0
FY16E
FY15E
Q4FY15E
Q3FY15E
1037 1057 1078 4123 4741
Q2FY15E
Q1FY15
951
FY14
FY13
FY12
FY11
FY10
FY09
1473 1695 1962 2221 2693 3084 3545
FY08
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Revenue Growth (YoY) in % (RHS)
Source: Company, ICICIdirect.com Research
Exhibit 2: CPIL's market share has only strengthened over the years
41.5
41.4
41.4
41.5
42.3
57.1
54.0
54.5
38.7
39.3
39.8
55.4
54.6
55.9
56
42.6
57
42
41
40
56
39
54.5
38
June,'14
April,'14
CY13
Sep,'13
Jun,'13
Mar,'13
CY12
Sep,'12
Jun,'12
36
Toothpastes - LHS
Toothbrush - RHS
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
43
37
Mar,'12
58
57
57
56
56
55
55
54
54
53
53
52
Page 3
Toothpaste supremacy to drive revenues from segment at 14.4% CAGR (FY14-16E)
Led by the dominance of CPIL in toothpastes with a presence across
premium, popular and mass categories and having SKUs across variants
(regular, sensitive, herbal, whitening, gum care, freshness), CPIL’s market
share in toothpaste has strengthened from 49.4% in CY08 to 56% in
CY13. Aided by the strengthening market share, toothpaste revenues
(~75% of CPIL’s revenues in FY13) and increasing penetration revenues
from the segment have grown at a CAGR of 16.9% in FY08-13.
Going ahead, we believe that with toothpaste per capita consumption
expected to grow at 5.6% CAGR in FY13-23E to ~240 gm by FY23E and
Colgate’s ability to maintain its market leadership through increasing
innovation and distribution, CPIL’s toothpaste volume CAGR would
remain strong at 9.1% in FY14-16E. Further, with new launches both in
the premium and economy segments maintaining their pace, we expect
CPIL to post value growth of 14.4% CAGR in FY14-16E.
Exhibit 3: Toothpaste revenue growth to remain healthy at 14.4% CAGR
5000
4000
3000
2000 1308.8 1492.4
1746.6
1977.5
2413.8
2852.0
3250.0
3732.4
4251.8
Exhibit 4: Volume growth to remain healthy at ~9%
20
15
10
17.0
14.0
13.2 14.0
12.2 11.0 12.0 12.0
9.0
18.2
14.0
10.0
9.4
14.8
9.4
13.9
8.8
5
1000
0
FY08
0
FY08
FY09
FY10
FY11
FY12
FY13
back of a significant increase in volume in FY07 led by a
promotion offer by the company in FY07. We believe the
offer was implemented by the company to de-stock its
toothbrush inventory from its Sewri unit. The unit was
shut down during that year and the company shifted the
manufacturing of toothbrushes capacity to the Baddi unit
723.1
607.6
504.5
FY09
FY10
FY11
FY12
Volume Growth
FY13 FY14E FY15E FY16E
Value Growth
390.7
Exhibit 6: …led by volume CAGR of ~16%
40
30
26.8
29.7
24.2 24.7
21.6 26.0
15.6
14.9
20
29.1
22.2
20.4 19.0
19.0 19.5 17.5
15.0
6.6
10
0
-10
FY08
FY11
Strengthening presence in toothbrush to sustain growth at 19.7% CAGR (FY14-16E)
CPIL’s undeterred market share at 41.5% (CY13) in the toothbrush
segment (~11% of revenues in FY13) has been led by strong volume
CAGR (FY08-13) of 21.2% and value CAGR of 19.4% (FY08-13). The
company’s brand strength has enabled it to grab market share of
unbranded players. Further, CPIL’s nearest competitor, P&G, with brand
Oral-B, continues to maintain a distant No. 2 position in the segment with
~19% volume share in the segment.
We believe that with consumers in need of upgrading in rural markets and
uptrading demand by urban consumer, CPIL’s revenues from the
toothbrush segment would continue to grow at 19.7% CAGR (FY14-16E)
led by healthy volume CAGR of 16.2%. We expect CPIL’s strong brand
equity to aid in further strengthening the market share for the company in
the toothbrush segment.
Exhibit 5: Toothbrush revenue growth to remain strong at 19.7% CAGR…
319.8
FY10
Source: Company, ICICIdirect.com Research
The decline in toothbrush volume in FY08 was on the
213.4 246.6
161.2 200.2
FY09
FY14 FY15E FY16E
Source: Company, ICICIdirect.com Research
800
700
600
500
400
300
200
100
0
22.1
25
FY12
FY13
FY14 FY15E FY16E
FY08
-7.9
FY09
FY10
FY11
FY12
Volume Growth
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
FY13 FY14E FY15E FY16E
Value Growth
Source: Company, ICICIdirect.com Research
Page 4
Increasing penetration, per-capita consumption to aid growth
The penetration of toothpaste in India is ~71% (2012), with ~35 crore of
the population still using conventional methods of brushing. Though
urban penetration is higher at ~91% (2012), rural penetration lags behind
at only 63% (2012). Hence, we believe there lies a huge untapped
opportunity for CPIL to increase its reach and volumes being the market
leader of the segment. Further, the overall per capita consumption of
toothpaste in India is significantly lower at 137 gm (2012) compared to
other developing nations, China at 277 gm, Philippines at 374 gm and
Brazil at 622 gm, providing enough room for CPIL to maintain its volume
growth. We believe increase in volume growth & per capita consumption
would come through increasing awareness on oral hygiene, change in
consumer habits (brushing twice daily) and increasing penetration, aiding
the company to maintain its healthy volume and value growth
Margins to gain strength on improving mix
CPIL’s EBITDA margins have improved significantly from 15.4% in FY08
to 20.8% in FY13 led by gross margin expansion and increasing
contribution of premium products in revenues. Led by the company’s
strong brand equity, CPIL enjoys strong pricing power in the oral care
industry enabling it to easily pass on higher raw material cost through
increasing prices without impacting its volume growth and concurrently
expanding its gross margins. Hence, higher gross margins have enabled
the company to expand its EBITDA margins.
Since Q1FY14, however, CPIL’s margins have been witnessing
moderation following the increased competitive action in the oral care
industry and slowing urban consumption demand (moderating the rate of
premiumisation in the segment). The increased competitive activity
(HUL’s aggressiveness and P&G’s re-entry) has pulled up the marketing &
other expenditure (includes sales promotion expenses) of CPIL, thereby
moderating its margins to 18.6% in FY14. We believe that though the high
marketing expenses have stressed margins in the near term, they have
aided CPIL in maintaining its market share and a healthy volume growth
in a tough scenario. The change in portfolio mix aided by higher
marketing spends has already improved the margins to 20.2% in Q1FY15.
Hence, we believe that as consumption demand revives (driving
premiumisation) and CPIL further gains market share in the segment,
EBITDA margins would trend back to 19.8% by FY16E.
Exhibit 7: EBITDA margins to improve to 19.8% by FY16E
21.6
15.4
20.2
21.5
20.8
18.6
20.2
19.1
19.3
19.1
19.4
19.8
15
657
664
194
199
206
207
806
Q1FY15
Q2FY15E
Q3FY15E
Q4FY15E
FY15E
945
FY16E
579
FY14
FY10
449
FY13
424
FY12
260
FY11
227
FY09
10
EBITDA (| crore) - LHS
EBITDA Margin (%) - RHS
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
25
20
15.4
FY08
1000
900
800
700
600
500
400
300
200
100
0
Page 5
5
0
Exhibit 8: Marketing expenses to remain high until FY16E
Exhibit 9: RM cost to sales ratio to remain low at ~40% until FY16E
Marketing Expenses to Sales %
FY16E
FY15E
Q4FY15E
Q3FY15E
FY08
FY16E
FY15E
Q4FY15E
Q3FY15E
Q2FY15E
Q1FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
0
Q2FY15E
5
Q1FY15
19.4 19.0 18.5 18.5 18.5 18.6 18.0
FY14
16.1 15.3 15.8 15.3 15.9
FY13
17.8
FY12
10
FY11
15
FY10
17.3 17.6 17.4 17.1 17.8 17.5 17.2
20 15.9 16.4 15.4 16.0 16.2 16.7
FY09
46
43.7
42.9
44
40.5
42
39.6 39.3 39.0
39.6
39.0 39.3 38.9 38.7 39.5
40
37.6
38
36
34
25
Raw Material Expenses to Sales %
Other Expenditure to sales %
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
Brand strength to aid in fighting competition
CPIL’s brand strength has aided to keep competition away and maintain
its strong dominance in toothpaste and toothbrush. However, since
H1FY14 (re-entry of P&G and expanding portfolio by Dabur, GSK
Consumer, HUL), competition has been getting aggressive targeting the
huge untapped opportunity of the segment. This has pulled up CPIL’s
sales & promotion expenses ~30% YoY pressurising margins (declined
from ~21% in FY13 to ~18% in FY14). Though margins have been
stressed, CPIL’s market share has further strengthened led by CPIL’s high
brand equity aiding in keeping competition at bay. We believe there could
be near term challenges for margins. However, with CPIL’s ability to
innovate and maintain its dominance, margins would revive.
Higher taxes to limit PAT growth
Though we believe CPIL’s margins would get back to higher levels of
~20% by FY16E, PAT growth is estimated to moderate to 9.8% CAGR
(FY14-16E) against 16.5% CAGR (FY08-13). The moderation in earnings
growth would be led by higher tax incidence on CPIL’s Baddi plant
(Himachal Pradesh). CPIL’s Baddi plant was under 100% tax exemption
until March, 2010 and is currently enjoying ~30% tax exemption until
FY15, after which it will enjoy no further exemptions. We estimate the
effective tax rate for CPIL will increase from 25.8% in FY14 to 30% in
FY16E, keeping earnings growth of CPIL under check.
Exhibit 10: PAT growth to moderate following higher tax incidence
700
600
500
22.6
20.7
24.1
25.1
25.8
28.0
30.0
30
25
16.0
400
20
12.7
300
15
10
200
100
0
231.7
290.2
423.3
405.2
446.5
496.8
539.9
567.7
650.7
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
FY16E
PAT (| crore)
Tax Rate (% of PBT)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
35
Page 6
5
0
High dividend payout and strong return ratios
CPIL has had exceptional return ratios of more than 100% mainly due to
high dividend payout of ~70% and ~| 560 crore of free cash flow in
FY13. The free cash flow of CPIL has increased from | 380 crore in FY08
to | 560 crore in FY13. Return ratios for CPIL have remained on a higher
trajectory of ~100% since FY08 following the capital reduction by the
company in FY08 and reducing the face value to | 1/share from
| 10/share. This improved the RoE from 57.1% in FY07 to 142.8% in FY08.
With no major capex plans lined up by the company, we expect the
payout to sustain at ~75% until FY16E, thereby keeping return ratios at
healthy levels. Dividend payout dipped slightly in FY14E following CPIL’s
capex in new facilities in Sanand, Gujarat and Sricity, Andhra Pradesh.
However, with the Gujarat plant already in operation from Q1FY15
onwards, and no new capex plans ahead, we expect dividend payout to
increase again to ~75% in FY15E.
Exhibit 11: Return ratios to remain at elevated levels
Exhibit 12: Dividend payout to return to ~75% by FY16E
130
150
120
130
110
110
90
100
70
90
50
80
30
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E
RoCE (%) - LHS
RoNW(%) - RHS
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
40
35
30
25
20
15
10
5
0
90
80
70
60
50
40
30
20
10
0
FY08
FY09
FY10
FY11
FY12
Dividend Per share (|) - RHS
FY13
FY14 FY15E FY16E
Dividend Payout (%) - LHS
Source: Company, ICICIdirect.com Research
Page 7
Outlook & valuation
With Colgate’s strengthening presence in toothpastes in spite of fierce
competition in the segment we remain positive on the long term growth
driven by increasing per-capita consumption and premiumisation in the
segment. The company’s unmatched product portfolio would continue to
maintain its dominance in the oral care segment. Though there are few
near term concerns for margins given the increased competitive intensity
in the segment, we believe CPIL’s higher marketing spends and
strengthening market share would continue to yield positive long term
returns for the company.
However, we remain wary of the expensive valuations of the company.
CPIL is currently trading at 34x its FY16E EPS of | 47.9, higher than its
historical average P/E of 28x. We value CPIL on triangulated valuation
method, assigning 50% weightage to price to sales multiple, 40%
weightage to DCF and 10% to EV/EBITDA, arriving at a target price of
| 1672 per share. We maintain our HOLD recommendation on the stock.
Exhibit 13: Triangulated valuation method
Assumption
5x Price to Sales of FY16E
Terminal Growth rate - 4%; WACC - 10.9%
27x EV/EBITDA for FY16E
Price/Sales
DCF
EV/EBITDA
Target Price
Price
1720.4
1616.6
1649.2
Weightage
50%
40%
10%
Value
860
647
165
1672
Source: Company, ICICIdirect.com Research
Exhibit 14: Two year forward price/earning multiple
2000
1600
1200
800
400
Price
35x
30x
25x
20x
Apr-14
Nov-13
Jun-13
Jan-13
Aug-12
Mar-12
Oct-11
May-11
Dec-10
Jul-10
Feb-10
Sep-09
Apr-09
0
15x
Source: Company, ICICIdirect.com Research
Exhibit 15: Valuations
FY13
FY14
FY15E
FY16E
Sales
(| cr)
3084.1
3544.9
4122.9
4740.8
Growth
(%)
14.5
14.9
16.3
15.0
EPS
(|)
36.5
36.2
41.7
47.9
Growth
(%)
22.6
-0.9
15.4
14.6
PE
(x)
44.7
45.1
39.1
34.1
EV/EBITDA
(x)
33.1
33.0
27.1
22.9
RoNW
(%)
101.5
90.0
79.0
74.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 8
RoCE
(%)
125.2
102.2
102.6
98.8
Company snapshot
2,000
Target Price 1672
1,600
1,200
800
400
Jun-16
Mar-16
Dec-15
Sep-15
Jun-15
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
0
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date
Jul-09
Event
Rise in share price was aided by a special dividend of |8/share and the increasing attractiveness of the defensives (FMCG Index) following the economic downturn
Nov-09
May-10
Jul-10
Mar-11
May-12
Second interim dividend of |7/share taking the total dividend in H1FY10 to |15/share
The company did not pay any final dividend keeping the dividend per share for FY10 restricted at |20/share
First interim dividend for FY11 of |10/share
Laclustre performance of the stock following a lower sales growth of ~13% and a decline in margins and net profit following increased competition
Significant jump in performance with reported sales growth of ~21% YoY, volume growth of ~12% and improvement in margins. Also, with run up in FMCG stocks,
following the robust growth and subdued performance in other sectors, the stock price witnessed significant gains.
Stock gained significantly mirroring the FMCG Index led by the preference of defensives with strong market leadership in a weak economic scenario
The re-entry of P&G in the oral care market in the country increased pressure on the stock considering the concerns of increasing competition from a fierce player.
Also, following the entry Colgate's marketing expenses were expected o increase, pressurizing margins.
The concerns of subdued FMCG volume growth with softening consumer demand impacted the performance of complete FMCG Index also impacting Colgate's stock
performance.
Jan-13
Jun-13
Nov-13
Source: Company, ICICIdirect.com Research
Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10
Name
Colgate-Palmolive Co
OppenheimerFunds, Inc.
Life Insurance Corporation of India
ARISAIG Partners (Asia) Pte. Ltd.
Vontobel Asset Management, Inc.
Columbia Wanger Asset Management, LLC
The Vanguard Group, Inc.
Lombard Odier Darier Hentsch & Cie
Wasatch Advisors, Inc.
JPMorgan Asset Management U.K. Limited
Shareholding Pattern
Latest Filing Date % O/S Position (m) Change (m)
31-Mar-14 51.00
69.4
0.0
31-May-14 6.29
8.6
0.0
31-Mar-14 4.71
6.4
0.6
31-Mar-14 3.53
4.8
0.0
31-Mar-14 2.08
2.8
-0.1
31-May-14 0.96
1.3
0.0
31-May-14 0.60
0.8
0.0
30-Apr-14 0.46
0.6
0.0
31-Mar-14 0.44
0.6
0.0
31-Dec-13 0.37
0.5
0.0
(in %)
Promoter
FII
DII
Others
Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
51.00 51.00 51.00 51.00 51.00
21.32 19.82 20.01 19.97 20.63
5.64
6.66
6.54
6.98
6.65
22.04 22.52 22.45 22.05 21.72
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys
Investor name
Life Insurance Corporation of India
PGGM Vermogensbeheer B.V.
Motilal Oswal Asset Management Company Ltd.
Mirae Asset Global Investments (India) Pvt. Ltd.
Norges Bank Investment Management (NBIM)
Value
12.58m
2.58m
1.89m
1.84m
1.35m
Shares
0.55m
0.12m
0.08m
0.08m
0.06m
Sells
Investor name
DSP BlackRock Investment Managers Pvt. Ltd.
Manulife Asset Management (Europe) Limited
Manulife Asset Management (US) LLC
Franklin Templeton Asset Management (India) Pvt. Ltd.
British Columbia Investment Management Corp.
Value
-11.89m
-8.21m
-5.25m
-5.13m
-2.77m
Shares
-0.59m
-0.32m
-0.24m
-0.20m
-0.12m
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 9
Financial summary
Profit and loss statement
(Year-end March)
Total Operating Income
Growth (%)
Raw Material Expenses
Employee Expenses
Marketing Expenses
Administrative Expenses
Other expenses
Total Operating Expenditure
EBITDA
Growth (%)
Depreciation
Interest
Other Income
PBT
Exceptional items
Total Tax
PAT
Growth (%)
EPS (|)
| Crore
FY13
3163.8
17.5
1,250.2
249.4
490.8
112.7
403.9
2,507.0
656.8
13.5
43.7
0.0
49.9
663.0
0.0
166.3
496.8
11.3
36.5
FY14
3578.8
13.1
1,402.0
211.8
688.7
87.4
349.7
2,914.8
664.0
1.1
50.8
0.0
50.3
663.6
64.4
188.1
539.9
8.7
39.7
FY15E
4150.8
16.0
1,596.1
261.9
767.4
129.5
590.2
3,345.1
805.7
21.3
68.4
0.0
51.5
788.8
0.0
221.1
567.7
5.1
41.7
FY16E
4772.3
15.0
1,872.7
284.5
853.4
189.6
627.0
3,827.1
945.2
17.3
75.5
0.0
60.0
929.6
0.0
278.9
650.7
14.6
47.9
Source: Company, ICICIdirect.com Research
(Year-end March)
Profit/Loss after Tax
Add: Depreciation
Add: Interest
(Inc)/dec in Current Assets
Inc/(dec) in Current Liabilities
CF from operating activities
(Inc)/dec in Investments
(Inc)/dec in Fixed Assets
Others
CF from investing activities
Issue/(Buy back) of Equity
Inc/(dec) in loan funds
Dividend paid & dividend tax
Inc/(dec) in Sec. premium
Others
CF from financing activities
Net Cash flow
Opening Cash
Closing Cash
| Crore
FY13
496.8
43.7
0.0
49.6
118.1
708.1
22.1
-102.5
-66.2
-146.6
0.0
0.0
-442.6
0.0
0.0
-442.6
119.0
309.8
428.8
FY14
539.9
50.8
0.0
-20.6
81.8
651.8
0.0
-365.5
1.4
-364.1
0.0
0.0
-429.6
0.0
0.0
-429.6
-141.8
428.8
287.0
FY15E
567.7
68.4
0.0
-161.4
124.9
599.6
-20.0
-90.0
62.6
-47.4
0.0
0.0
-448.8
0.0
0.0
-448.8
103.4
287.0
390.4
FY16E
650.7
75.5
0.0
-37.0
123.0
812.3
-20.0
-100.0
0.0
-120.0
0.0
0.0
-489.6
0.0
0.0
-489.6
202.7
390.4
593.1
FY13
FY14
FY15E
FY16E
36.5
39.7
36.0
28.0
31.5
39.7
43.4
44.1
27.0
21.1
41.7
46.8
52.9
33.0
28.7
47.9
53.4
64.7
36.0
43.6
20.8
21.5
16.1
135.2
9.6
55.2
18.6
20.5
15.2
110.0
5.6
52.5
19.4
19.1
13.8
105.0
11.0
50.0
19.8
19.6
13.7
0.0
8.3
49.0
101.5
125.2
94.6
90.0
102.2
86.3
79.0
102.6
76.3
74.0
98.8
71.9
44.7
33.1
7.1
7.2
45.3
41.1
33.0
6.2
6.3
37.0
39.1
27.1
5.3
5.4
30.9
34.1
22.9
4.6
4.7
25.2
0.0
0.0
1.0
0.8
0.0
0.0
0.8
0.5
0.0
0.0
0.9
0.7
0.0
0.0
1.1
0.8
Source: Company, ICICIdirect.com Research
Balance sheet
Liabilities
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Long Term Provisions
Other Non-current Liabilities
Total Liabilities
Assets
Gross Block
Less: Acc Depreciation
Net Block
Capital WIP
Deferred Tax Asset
Non Current Investments
LT Loans & Advances/Others
Current Assets
Inventory
Debtors
Cash
Loans & Advances
Other Current Assets
Current Liabilities
Creditors
Provisions
Other CL
Net Current Assets
Total Assets
Cash flow statement
| Crore
FY13
FY14
FY15E
FY16E
13.6
476.0
489.6
0.0
34.9
0.8
525.3
13.6
586.3
599.9
0.0
24.9
0.7
625.5
13.6
705.2
718.8
0.0
24.9
0.7
744.4
13.6
866.3
879.9
0.0
24.9
0.7
905.5
673.5
392.9
280.7
102.0
22.4
37.1
71.5
992.7
436.8
555.9
141.5
17.8
37.1
64.6
1,082.7
505.2
577.5
141.5
17.8
57.1
2.1
1,182.7
580.7
602.0
141.5
17.8
77.1
2.1
185.3
81.2
428.8
94.5
3.3
225.7
54.7
287.0
102.7
1.7
282.4
124.3
390.4
134.0
5.6
337.7
108.0
593.1
128.0
9.5
466.6
64.6
250.2
11.6
525.3
510.0
70.4
282.9
-191.5
625.5
564.8
91.4
332.0
-51.6
744.4
636.4
95.5
379.3
65.1
905.5
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March)
Per share data (|)
EPS
Cash EPS
BV
DPS
Cash Per Share
Operating Ratios (%)
EBITDA Margin
PBT / Net Sales
PAT Margin
Inventory days
Debtor days
Creditor days
Return Ratios (%)
RoE
RoCE
RoA
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt/EBITDA
Debt / Equity
Current Ratio
Quick Ratio
Source: Company, ICICIdirect.com Research
.
ICICI Securities Ltd | Retail Equity Research
Page 10
ICICIdirect.com coverage universe (FMCG)
EPS (|)
CMP
M Cap
Sector / Company
(|) TP(|) Rating
(| Cr) FY14 FY15E FY16E
1,632 1,672
Hold 22,194 39.7 41.7 47.9
Colgate (COLPAL)
199 182
Hold 34,702
5.2
1.3
1.7
Dabur India (DABIND)
662 600
Hold 143,158 17.9 18.8 21.6
Hindustan Unilever (HINLEV)
357 387
Buy 283,929 11.1 12.6 14.4
ITC Limited (ITC)
181 188
Hold
3,276
4.5
7.4
8.9
Jyothy Lab (JYOLAB)
249 262
Buy 16,061
7.5
8.6 10.5
Marico (MARIN)
5,171 4,615
Hold 49,857 115.9 120.2 130.6
Nestle (NESIND)
154 182
Buy
9,523
7.8
7.1
8.8
Tata Global Bev (TATTEA)
1,635 1,664
Buy
2,524 98.8 81.8 97.9
VST Industries (VSTIND)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
P/E (x)
FY14 FY15E FY16E
41.1 39.1 34.1
38.0 153.8 119.1
37.0 35.1 30.7
32.3 28.3 24.8
40.2 24.4 20.3
33.2 28.9 23.6
44.6 43.0 39.6
19.8 21.5 17.5
16.6 20.0 16.7
EV/EBITDA (x)
RoCE (%)
RoE (%)
FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E
33.0 27.1 22.9 102.2 102.6 98.8 90.0 79.0 74.0
38.0 31.7 27.4 42.4 43.2 41.2 38.3 36.1 33.2
31.5 27.2 23.3 128.6 131.0 131.3 118.0 109.9 107.0
22.5 19.4 17.1 44.9 47.0 47.8 34.4 35.0 36.1
23.3 18.5 16.0 10.0
9.5 10.6
9.3 14.0 15.3
22.6 19.3 16.0 29.3 30.0 31.7 22.3 21.4 21.9
25.4 24.4 22.7 46.0 54.8 60.8 47.2 47.4 50.3
13.1 12.0 10.0
8.8
9.1 10.5
9.4
8.2
9.4
11.2 12.9 10.6 58.8 48.0 59.2 46.3 38.3 43.8
Page 11
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ANALYST CERTIFICATION
We /I, Sanjay Manyal, MBA (Finance); Parineeta Rajgarhia, MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
Disclosures:
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
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Page 12