Initiating Coverage
November 21, 2013
Colgate Palmolive India (COLPAL)
Rating Matrix
| 1254
Rating
:
Hold
Target
:
| 1365
Target Period
:
12-15 months
Potential Upside
:
9%
YoY Growth (%)
(YoY Growth)
Net Sales
EBITDA
Adj. PAT
Adj. EPS (|)
FY12
21.3
28.8
10.7
10.7
FY13
17.5
13.5
11.3
11.3
FY12
38.2
41.6
28.9
6.3
102.5
123.8
FY13
34.3
37.4
25.3
5.4
101.5
125.2
Valuation Summary
P/E (x) (Adjusted)
Target P/E (x)
EV/EBITDA (x)
Mcap/Sales (x)
RoNW (%)
RoCE (%)
Stock Data
Market Capitalization
Total Debt (FY13)
Cash and Investments (FY13)
EV
52 week H/L
Equity capital
Face value
MF Holding (%)
FII Holding (%)
Comparative return matrix (%)
Return %
Colgate-Palmolive (In
Dabur
Hindustan Unilever
P&G
1M
(1.1)
(7.0)
(4.1)
1.4
3M
(0.4)
0.4
(1.5)
3.7
Price movement
6,500
6,000
5,500
5,000
Colgate-Palmolive India Ltd (CPIL) is the country’s leading oral care
player with its brand ‘Colgate’ present across all categories of oral
health. Over the years, CPIL has been consistently ranked among the
FY14E
FY15E top three trusted brands of the country and has developed brand
12.6
14.3 equity that has made the brand, Colgate, synonymous with the
5.7
23.5 toothpaste category itself. The strong volume market share (April,
5.5
18.2
2013) at 55.4% and 41.5% in toothpaste and toothbrush, respectively,
5.5
18.2
justifies the dominance it commands in the respective categories. Led
by CPIL’s strong market position, the company has posted impressive
revenue and PAT CAGR of 16.5% from FY08-13. We believe the oral
FY14E
FY15E
care industry in India is poised to continue high growth led by
32.5
27.5
increasing per capita consumption, increasing penetration in rural
32.2
30.0
23.9
19.3 areas and premiumisation. However, the increasing competitive
4.8
4.2 intensity in the segment could lead to a moderation in revenue and
91.4
91.2 PAT CAGR for CPIL to 13.4% and 11.7%, respectively. We initiate
102.3
117.4 coverage on the stock with a HOLD rating.
Market leadership in oral care to sustain
The company’s volume market share in toothpaste at 55.4% and
| 17053.5 Crore
toothbrush at 41.5% is ~2x that of its nearest competitors in both
| 0 Crore
segments led by CPIL’s strong brand equity and an unmatched oral care
| 428.8 Crore
portfolio. Though HUL has been expanding its oral care portfolio to
| 16624.7 Crore
1567 / 1202 match that of CPIL, it has been unable to make any significant difference
| 13.6 Crore in the market leader’s share. We believe that with CPIL being proactive in
| 1 innovation in sub-segments and having one of the highest distribution
6.7 reach, it would continue to grow at the same/higher pace than the oral
19.8 care industry, thereby maintaining its market dominance.
Increasing penetration, per-capita consumption to aid growth
Though toothpaste penetration in India has increased from 56% (2008)
6M
12M
(11.6)
(5.7) to 71% (2012), there are still ~30 crore people using conventional ways
0.9
27.0 of brushing. Being the market leader, this throws up a big untapped
(0.8)
11.8 opportunity for CPIL. Further, with India’s per capita consumption being
8.0
13.3 abysmally low at 136 gm (FY12) compared to China at 277 gm and Brazil
at 622 gm, we believe CPIL still has enough room to grow.
Earnings growth to gain traction, attractively valued
2,000
Currently, the stock is trading at 27.5x its FY15E EPS of | 45.6/share,
~10% premium to its historic average. With strong growth in revenues
1,800
and earnings at 16.5% CAGR (FY08-13), dominance in oral care and
1,600
excellent return ratios, we believe this premium is justified. We have
1,400
valued CPIL on a triangulated fair value of P/E, EV/EBITDA and DCF
1,200
methodology, assigning it a target price of | 1365/share.
4,500
1,000
4,000
Dec-12
Oral care bellwether…
800
Feb-13
May-13
Price (R.H.S)
Aug-13
Nov-13
Nifty (L.H.S)
Analyst’s name
Sanjay Manyal
sanjay.manyal@icicisecurities.com
Parineeta Poddar
parineeta.poddar@icicisecurities.com
ICICI Securities Ltd | Retail Equity Research
Exhibit 1: Financial Performance
(Year-end March)
Net Sales (| crore)
EBITDA (| crore)
Net Profit (| crore)
EPS (|)
P/E (x)
Mcap / Sales (x)
RoCE (%)
RoNW (%)
(| crore)
FY11
2,220.6
449.0
405.2
29.8
42.3
7.7
108.0
105.5
Source: Company, ICICIdirect.com Research
FY12
2,693.2
578.5
446.5
32.8
38.4
6.4
123.8
102.5
FY13
3,163.8
656.8
496.8
36.5
34.5
5.4
125.2
101.5
FY14E
3,562.2
694.5
576.5
42.4
29.7
4.8
102.3
91.4
FY15E
4,070.2
857.3
619.6
45.6
27.7
4.2
117.4
91.2
Shareholding pattern (Q2FY14)
Shareholder
Holding (%)
Promoters
51.0
Institutional Investors
26.5
Public
22.5
FII & DII holding trend (%)
25
20
15
10
5
0
20.9
6.0
21.6
21.6
21.3
5.2
5.4
19.8
6.7
5.6
Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14
FII
DII
Company Background
Colgate-Palmolive (India) (CPIL) is a 51% subsidiary of Colgate
Palmolive Company (CPC), US. CPIL began operations in India in 1937
and has successfully completed 75 years of operations in the oral and
personal care industry in India.
CPIL, headquartered in Mumbai, is the country’s leading oral care
company generating ~95% of its revenues (| 3006 crore) from the
oral care business with its flagship brand Colgate and ~5% from its
personal care business (| 158 crore) under the brand Palmolive. The
company has an insignificant presence in the household care
segment with its brand Axion.
Within the oral care segment, the company generates ~79% revenue
from toothpaste (~| 2373 crore in FY13), ~12% from tooth brush
(~| 348 crore in FY13) and ~9% from other oral care products
(toothpowder, mouthwash, dental floss, total ~| 285 crore in FY13). It
is the market leader in the toothpaste and toothbrush segments in
India with volume share of 55.4% and 41.5%, respectively.
In the personal care segment, CPIL is present only in the skin and hair
care segment offering soaps, shower gels, shaving cream, skin cream
and shampoos.
Over the years, with the successful launch of oral care products within
each strata of purchasing power (premium, popular and economy)
and within each sub-segment of the respective category (e.g.
sensitive toothpaste in toothpaste, gum care toothbrush in brushes) in
oral care, the company has developed a strong brand equity (awarded
the country’s most trusted brand in 2003-07 and 2011-12). This has
aided the company to post strong revenue, EBITDA and PAT growth
at 16.5%, 23.7% and 16.5% CAGR, respectively in FY08-13.
Exhibit 2: Colgate revenue break-up (FY13)
Colgate India
Total Sales (|3164 crore)
Personal care
~5% of the Sales
(~|158 crore)
Oral care
~95% of the Sales (~|3006
crore)
Toothpaste
~79% of oral care sales
(~|2373 crore)
Toothbrush
~12% of oral care sales
(~|348 crore)
Others
~9% of oral care sales
(~|285 crore)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
Exhibit 3: Timeline of launches by CPIL within oral and skin care segments
Incorporated in India
as a private limited
company
Colgate
Palmolive India
Limited became
the official name
Launched
Colgate
Total
Launched Colgate Stripe
paste & Palmolive
Naturals Soap,Keratin
Shampoo & Palmolive
Optima in hair care
segment
Launched
Colgate
Sensation
Colgate Max Fresh
Introduced Herbal White &gel is launched,
Simply White, new aromaColgate 360
therapy products under toothbrush
Colgate Visible
introduced
Palmolive
White introduced
1937 1949 1953 1978 1993 1994 1996 1998 1999 2000 2003 2005 2006 2011 2013
Colgate Powder was
launched
Introduced the 1st
Flouride toothpaste
CPIL was
listed on the
stock
exchange
Acquired
Cibaca
brand
Launched
Colgate
Double
Protection
Re-launched Cibaca &
Charmis cream, Launched
Palmolive shave Gel,
Colgate Herbal, Zig Zag &
Navigator toothbrush
Colgate Double Protection
Launched Colgate
Launched Colgate
Active Salt
Sensitive Protoothpaste
Relief
Source: Company, ICICIdirect.com Research
Exhibit 4: CPIL’s extensive products basket
Oral care
Toothpaste
Colgate Dental Cream
Toothbrushes
Colgate 360
Toothpowder
Colgate Toothpowder
Colgate Total
Colgate Sensitive
Colgate Visible White
Colgate 360 Sensitive-Pro-Relief
Colgate Sensitive
Colgate ExtraClean
ColgateSensitive-Pro-Relief
Colgate Extra-Clean Gum Care
Colgate Max Fresh
Colgate Kids 2+
Colgate Kids ToothPaste
Colgate Zig Zag
Colgate Herbal
Colgate Cibaca Family
Protection
Colgate 360 Actiflex
Whitening Product
Colgate Maxwhite
Kids Product
Colgate Kids ToothPaste
Mouthwash
Colgate Plax
Colgate Kids 2+
Colgate Active Salt
Colgate Maxwhite
Personal care
Household care
Body Wash
Liquiud Hand Wash
Palmolive Naturals
Palmolive Naturals Liquid
Hand Wash - Family Health
Moisturizing Body Wash Milk & Honey and Milk &
Almond
Palmolive Aroma Shower Gel Relax
Palmolive Aroma Shower Gel Vitality
Palmolive Thermal Spa Firming & Massage
Shave Preps
Skin Care
Hair Care
Palmolive Shave Cream Palmolive Charmis Cream Halo Shampoo
Surface Care
Axion Dish Washing Paste
From the dentist
Gingivtis Treatment
Sensitivity Treatment
Tooth Whitening
Fluroide Therapy
Specialty Cleaning
Colgate PerioGard
Colgate Sensitive
Colgate Visible White
Colgate Phos-Flur
Colgate Interdental Brush
Colgate Sensitive Pro-Relief
Colgate Orthodontic Brush
Colgate Gel Kam
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 3
Investment Rationale
Market leadership in oral care to sustain
Over the years, CPIL has maintained its market leadership in the oral care
segment with 55.4% share by volume (April, 2013) in the toothpaste
category and 41.5% volume share (April, 2013) in the toothbrush
category. The nearest competitors in the toothpaste and toothbrush
categories have 23.5% (April, 2013) and 19.1% (April, 2013) share by
volume, respectively. We believe the company’s strong brand equity in
the segment, significant premium in market share compared to its
competitors, comprehensive oral care portfolio and increasing reach in
rural markets would maintain its leadership position in the oral care
industry. Hence, we expect the volume growth (CAGR FY13-15E) to
remain healthy in toothbrush at 17% and toothpaste at 9.3% keeping the
volume share for the company intact.
Exhibit 5: CPIL’s toothpaste market share (%)
Exhibit 6: CPIL’s toothbrush market share (%)
45
60
55
50
52.4
53.5
52.4
54.2
55.4
42
39
49.4
40.0
39.5
38.4
35.8
36
45
41.5
40.8
33
30
40
2008
2009
2010
2011
2012
Source: Company, ICICIdirect.com, Research
Years pertain to calendar year; 2013 share is up to April, 2013
2013
2008
2009
2010
2011
2012
2013
Source: Company, ICICIdirect.com, Research
Years pertain to calendar year; 2013 share is up to April, 2013
Toothpaste: Brand strength to keep growth intact
The brand dominance of Colgate in the toothpaste category
has made it synonymous with the category itself.
Toothpaste revenue mix for CPIL
Classification
Family
% of revenues
51%
Freshness
Premium
20%
18%
Mass
11%
Products
Colgate Dental
Cream, Active Salt,
Herbal, Max white
Colgate Max Fresh
Colgate Total,
Colgate Visible
white, Sensitive
Pro-Relief
Colgate Cibaca
ICICI Securities Ltd | Retail Equity Research
Toothpaste contributes ~75% of CPIL’s revenues (~| 2373 crore FY13)
and has posted 16.9% CAGR from FY08-13. We expect the growth to
remain strong at 14% CAGR in FY13-15E on the back of the company’s
strong volume market share in the segment, increasing per capita
consumption and rising penetration of toothpaste in rural markets.
CPIL’s market share (volume) in toothpastes has increased from 49.4% in
FY08 to 55.4% in April, 2013 supported by strong volume growth of
11.6% (CAGR FY08-13). Further, led by CPIL’s dominance in the
toothpaste market, the increasing per capita consumption in the country
from 108 gm in FY08 to 146 gm in FY13 (6.2% CAGR in FY08-13) has
directly benefited the company. Going ahead, we believe that with 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 9.3% in FY13-15E.
Further, with new launches both in the premium and economy segments
maintaining their pace, we expect CPIL to post value growth of 14%
CAGR in FY13-15E.
Page 4
Exhibit 7: Toothpaste volume and value growth (in %)
25
22.1
20
15
12.2
We expect CPIL to grow ahead of the market both in
9.0
10
volume and value terms led by the company’s leadership
that would aid in capturing the share of unorganised players
18.2
17.0
14.0
11.0
12.0
12.0
13.2
14.4
14.0
10.0
13.5
9.5
9.2
FY14E
FY15E
5
coupled with its ability to innovate within the category
0
FY08
FY09
FY10
FY11
Volume Growth
FY12
FY13
Value Growth
Source: Company, ICICIdirect.com Research
CPIL’s market share in toothpaste has strengthened over time from
49.4% in CY08 to 55.4% in April, 2013. We believe the increase in market
share of the company has been driven by eating up the market share of
HUL (Pepsodent and Close-Up) and Dabur (Dabur Red, Babool and
Meswak) led by CPIL’s higher promotional activities, increasing
distribution and product innovation ability. CPIL has constantly innovated
and developed the category by launching products and creating new
sub-segments to meet the changing needs of consumers. For instance,
with the launch of Colgate Sensation way back in 1999, CPIL was the first
to enter the sensitive segment in India. The segment is now witnessing
active participation from competitors. However, CPIL enjoys the first
mover advantage.
Exhibit 8: CPIL’s toothpaste market share compared to its competitors
60
50
53.5
52.4
49.4
55.4
54.2
52.4
40
30
24.5
22.8
22.5
23.9
23.7
23.5
20
10
0
2008
2009
2010
Colgate
2011
Competitor 1
2012
Source: Company, ICICIdirect.com, Research
Years pertain to calendar year; 2013 share is up to April, 2013
2013
Exhibit 9: CPIL’s presence across all sub-segments compared to peers
Toothpaste sub-segments
Basic Economy
Freshness
Gum Care
Herbal
Kids
Red
Salt
Sensitive
White
Colgate
P
P
P
P
P
P
P
P
P
Dabur
P
P
P
P
-
GSK
P
-
HUL
P
P
P
P
P
P
P
P
P&G
P
-
Source: Company, ICICIdirect.com, Research
P=Present in the sub-segment
Further, led by the changing lifestyle and needs of the consumers, CPIL
has constantly launched toothpastes to meet the changing demands.
This has led the company to have a complete portfolio of toothpastes
spanning across all sub-segments of the category (sensitive, gumcare,
whitening) and all price points (| 5 for 10 gm to | 120 per 100 gm) giving
it an edge over its competitors whose oral care portfolio is quite limited
when compared to the market leader, enabling CPIL to command the
market dominance it does in toothpaste.
ICICI Securities Ltd | Retail Equity Research
Page 5
Toothbrush: Continues to lead market with strong volume growth
CPIL’s volume growth in toothbrush has been healthy at 21.2% CAGR
from FY08-13 with market share undeterred at 41.5% (June, 2013),
largely by the shift in demand from unorganised to branded players and
increase in penetration. Colgate offers its toothbrushes at all price
points of the category, economy (Zig-Zag & Extra clean), popular
(Colgate 360, Colgate Max-Fresh) and premium (Colgate Zig-Zag germ
protector & Colgate 360 Whole Mouth Clean Electric). With CPIL being
the market leader and its presence across the value pyramid, we believe
it would continue to maintain its market share in the toothbrush
category also (category growing at 15-20% by volumes). CPIL has
maintained its volume share despite the aggressive promotional
activities by its nearest competitor, Procter & Gamble (brand: Oral-B). In
spite of this, P&G continues to remain a distant second in the
toothbrush category with 19.1% volume share (April, 2013). Hence, with
the segment expected to grow at 15-20% per annum, we estimate
volume growth of 17% CAGR in FY13-15E for CPIL. The value growth in
toothbrush has been 19.4% CAGR in FY08-13. We expect this to
continue to grow at 20.4% CAGR in FY13-15E driven by the
premiumisation in the category.
Exhibit 10: Toothbrush volume market share (%)
50
40
The toothbrush market is estimated at ~| 1600 crore
(FY13). Total ~40% of the value market is controlled by the
40.8
40.0
38.4
30
top two players.
20
16.0
19.4
18.4
17.4
16.0
41.5
39.5
35.8
19.1
10
The stupendous increase in toothbrush sales volume in
FY07 was on the back of the promotional offer run by the
0
company. We believe that the offer was implemented by
2008
the company to de-stock its toothbrush inventory from its
2009
2010
2011
Colgate
Competitor 1
2012
2013
Sewri unit. The unit was shut down during that year and the
company shifted the manufacturing of toothbrushes
capacity to the Baddi unit.
Source: Company, ICICIdirect.com Research
Years pertain to calendar year; 2013 share is up to April, 2013
Exhibit 11: Toothbrush volume and value growth (%)
60
50
We believe the growth was led by the
promotional offer of the company
50
40
26.8
30
20
24.2
15
12.8
29.7
25
22
22.2
15.6
6.6
10
10
12
18
21.9
16
18.9
0
-10
-20
FY07
FY08
-8
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
Impact of high base of FY07 due to the promotional offer
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 6
Low penetration & per capita consumption provide headroom for growth
The penetration of toothpaste in India has increased from ~56% in
FY08E to ~71% FY13E. In spite of the increase, there still remains ~30
crore people (~10% of the urban population and ~37% of rural
population) using conventional methods of oral care. Hence, being the
market leader, this throws up a big untapped opportunity for Colgate.
Exhibit 12: Toothpaste penetration (%) trend
90
75
80
80
79
78
87
84
70
56
60
50
38
40
43
2006
2007
91
61
63
2011
2012
49
46
42
90
30
2005
2008
2009
Urban
2010
Rural
Source: Company, ICICIdirect.com Research
Further, with the country’s per capita consumption being abysmally low
at 137 gm in FY12 (146 gm in FY13) compared to China at 277 gm,
Philippines at 374 gm and Brazil at 622 gm, we believe Colgate still has
enough room for growth. We estimate that with 6.2% volume growth
and 1.3% population growth until 2023E, the per capita toothpaste
consumption could increase to ~235 gm (~1.6x from current
consumption). The increase could be higher if changes in consumer
habits and preferences follow global trends.
Exhibit 13: Per capita consumption of toothpaste (gram) (FY12)
700
280
600
240
500
200
400
300
Exhibit 14: India’s per capita consumption (gram)
622
561
200
160
374
100
120
277
137
0
Brazil
USA
Philipines
China
Source: Company, ICICIdirect.com, Research
235
India
80
108
108
116
FY08
FY09
FY10
154
163
127
138
146
FY11
FY12
FY13 FY14E FY15E FY23E
Source: Company, ICICIdirect.com, Research
The growth in per capita consumption can be driven by an increase in
penetration, which would consequently be driven by an increase in the
shift of consumers to toothpaste from toothpowder in rural areas and
increase in number of people towards brushing twice daily from once
currently. In India, currently only ~15% brush twice daily in contrast to
developed markets where ~87% brush twice daily. Hence, as toothpaste
penetration and the habit of brushing twice daily increases in the
country, CPIL being the market leader would benefit significantly.
ICICI Securities Ltd | Retail Equity Research
Page 7
Apart from this, increasing distribution reach and higher advertisement
by oral care companies and increasing the awareness about oral hygiene
would also drive penetration.
Further, the market for advanced oral care products, mouth wash, dental
floss and teeth whitening products is still at a nascent stage in India and
present only in urban markets. However, with CPIL’s early entry into
these segments, we believe that as the segment evolves, CPIL will
further benefit from the category expansion.
Brand strength to aid in combating competition
With competition in the economy category from Ajanta and Amar being
effectively combated by Cibaca, Dabur predominantly offering products
in the herbal space and Hindustan Unilever (HUL) no longer gaining
market share, we believe the competitive scenario augurs well for
Colgate. Additionally, while Colgate markets an entire oral-care range,
with strong market shares in all sub-segments, HUL and Dabur are
present only in certain sub-segments, enabling the company to increase
or decrease prices in other sub-segments while holding prices of some
constant.
Though CPIL’s brand strength has aided it to maintain its leadership
position, the rising threat for CPIL is from new entrants, GSK and P&G, in
the premium segments (GSK has already overtaken CPIL’s market share
in the sensitive segment). With P&G’s entrance in the toothpaste
segment with its brand ‘Oral B’ and as known, P&G being a fierce
competitor, we believe CPIL would have to increase its spends to sustain
its market share. This could thereby impact its margins. Hence, though
we remain confident that CPIL has enough room for expanding its
marketing spends without substantially impacting its demand and brand
equity, we remain wary of any significant margin expansion until FY15E
to see how competitive activity plays out.
ICICI Securities Ltd | Retail Equity Research
Page 8
Though HUL has a fairly vast portfolio of products in
each product and sub-segments also, it has failed to
create the same brand equity and thereby impact CPIL’s
market share. Even post P&G’s re-entry into India in the
toothpaste segment, the company’s market share has
failed to witness any moderation stressing on the brand
strength of CPIL in the oral care industry in India
Unmatched product portfolio in oral care
CPIL has the most extensive oral care product portfolio among FMCG
players. The company has offerings across the value pyramid (economy,
popular and premium) as well as within each sub-category (sensitive
toothpaste, gum care toothpaste, electric brush, kids brush) providing
consumers with both up-trading as well as down-trading opportunities.
With P&G present only in the popular and premium segments, Dabur in
the economy segment and HUL largely in the popular and premium
segments and absent in the herbal segment, CPIL gets an edge over
them and, thereby, enjoys significant strength in oral care market share.
Exhibit 15: Exhibit 12: Product portfolio across segments with price points
TOOTHPASTES
Mass
(|5-|40)
Popular
(|41-|60)
Premium
(|61 and above)
TOOTHBRUSHES
Mass
(|10-|30)
Popular
(|31-50)
Premium
(|51 and above)
OTHERS
Colgate
Colgate Dental Cream - |36
Colgate Cibaca - |23
Colgate Herbal - |39
Colgate Active Salt - |40
Colgate Total -|60
Colgate Max Fresh Red - |52
Dabur
Dabur Red - |38
Dabur Babool - |33
Meswak - |37
Dabur Babool Active Salt - |28
Colgate Max White - |52
Colgate Total - Progum - |67
Colgate Visible White - |80
Colgate Sensitive - |113
ColgateSensitive-Pro-Relief -|136
Colgate Kids - |90
Colgate
Colgate Extra Clean - |17
Colgate Kids- |12-|17
Colgate Zig Zag - |22-|28
Colgate Gum Comfort - |30
Colgate Extra Clean Gum Care
Colgate Super Shine - |20
Colgate Super Junior - |12
Colgate Super Flexi - |14
Colgate Max Fresh - |50
Colgate 360 - |45
Colgate Sensitive - |40
Colgate Kids Barbie - |69
Colgate 360 Acti Flex - |69
Colgate Smiles Spiderman - |69
Colgate 360 Sensitive Pro-Relief - |69
Colgate 360 surround - |75
Colgate 360 Electric- |395
Colgate
Colgate Mouthwash - |60
Colgate Tooth powder - |17
Dabur
HUL
Pepsodent Germi Check- |33
Pepsodent Regular - |33
Pepsodent Super Salt - |22
Pepsodent Complete - |73
Close - Up Red - |53
Pepsodent Centre Fresh - |51
Close Up Fire Freeze - |60
Pepsodent Whitening - |53
Pepsodent Gum Care Pepsodent Expert Whitening - |63
Pepsodent Sensitive - |113
Pepsodent Pro-Relief - |175
Pepsodent Sensitive Plus - |175
Pepsodent Kids - |68
HUL
Pepsodent Smart Clean - |11
Pepsodent Germi Check Fighter - |17
Pepsodent Kiddy - |14
Pepsodent Double Action - |28
P&G
All Rounder 32 - |44
All Rounder Gel - |45
Pro Health - |77
P&G
Cross Action Pro-Health - |50
Aral B All Rounder - |28
Oral B Cross Action - |69
Oral B All Rounder - |22
Oral B Advantage Sensitive - |35
Oral B Advantage Plus - |40
Oral B Kids - |25
Pepsodent complete Clean -|50
Pepsodent Ultra Care - |50
Pepsodent Pro Gum health - |50
Pepsodent Pro Whitening - |59
Pepsodent Pro-Complete - |59
Pepsodent Pro Sensitive - |59
Pepsodent Double Care -|80
Dabur
HUL
Pepsodent Mouth Wash - |60
P&G
Dabur Lal Manjan - |15
Source: Company, ICICIdirect.com Research
Prices recorded as on October,2013. Prices have been adjusted for 100 gm for the ease of comparison
With toothpaste being a non-discretionary consumption item, especially
in urban India, it is largely immune to any significant dip in consumption
volume during a tough economic scenario. However, there could be
down trading during such times. This would trim the value growth for
oral care keeping volume growth intact. Similarly, when economic
conditions improve, consumers tend to up-trade to premium offerings.
Hence, with Colgate’s presence across the value chain and within all subsegments of categories (toothpaste and toothbrush) we remain confident
on the company’s volume growth and ability to withstand the current
economic downturn.
ICICI Securities Ltd | Retail Equity Research
Page 9
Further, though CPIL has a strong portfolio in India compared to its
competitors, there still remains a wider global portfolio of Colgate US,
which the company can bring to India. Colgate being the global leader in
oral care, imbibing products from the global portfolio would further
strengthen the company’s presence in India as consumption and
penetration increases.
Exhibit 16: Colgate's global portfolio
Oral Care
Personal Care
Toothpaste
Colgate Total Advanced
Colgate Optic White
Colgate Total
Colgate Sensitive Pro-Relief
Colgate Max Fresh
Colgate Luminous
Colgate Sensitive
Colgate 2in1
Colgate Sparkling White
Colgate Cavity Protection
Ultrabrite
Colgate Triple Action
Colgate Baking Soda and
Peroxide Whitening Bubbles
Colgate Tartar Protection with
Whitening
Colgate Total Pro Shield Plus
Sensitivity
Toileteries
Speed Stick Power
Toothbrush
Colgate 360
Colgate Slim Soft
Colgate Wisp
Colgate Max White
Colgate Wave
Colgate Plus
Colgate Extra Clear
From the Dentist
Colgate Prevident
Colgate PerioGard
Colgate Phos-Flur
Colgate PreviDent Varnish
Colgate Gel-Kam
Colgate Duraphat
Others
Colgate Orabase
Colgate Peroxyl
Colbate Phos-Flur
Women Deodorant
Body wash
Lady Speed Stick Stainguard Softsoap Fragrance Collection
Liquid Hand Soap
Softsoap Classics
Bar Soap
Softsoap Bar Soap
Orther Speed Stick
Speed Stick 24/7
Lady Speed Stick 24/7
Teen Spirit
Softsoap Advanced Benefits
Softsoap Pampered Hands Foam
Speed Stick StainGuard
Lady Speed Stick
Antiperspirant POWER
Irish Spring Original
Irish Spring Moisture Blast
with HydroBeads
Irish Spring Deep Action
scrub
Irish Spring Icy Blast
Irish Spring Aloe
Afta
Skin Bracer
Home Care
Pet Nutrition
Dishwashing
Ultra Palmolive Antibacterial Dish
Liquid
Ultra Palmolive Dish & Sponge
Fresh
Palmolive Fresh Infusions
Ultra Palmolive Oxy Power
Degreaser
Ultra Palmolive soft touch
Palmolive eco Dishwashing
Detergent
Ajax Dish Liquid
Ajax Dish Packs
Household Cleaners
Murphy Oil Soap
AJAX
Fabuloso
Kids Products
Colgate Dora the Explorer
Colgate 2 in 1
Colgate SpongeBob SquarePants
My First Colgate
Transformers
Fresh 'n' Protect
Kids Toothpaste
Colgate Kids Tooth brush
Softsoap Premium Collection
Irish Spring Body Wash
Softsoap Kids Foam Works
Fabric Conditioner
Suavitel Ultra Liquid Fabric
Conditioner
Suavitel Regular Liquid Fabric
Conditioner
Suavitel Dryer Sheets
Product Ingredients
Palmolive
Murphy Oil Soap
Suavitel
Fabuloso
Ajax
Dermassage
Hillspet Nutrition
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 10
Increasing rural demand key driver for revenue growth
While the company’s strong brand equity has enabled it to command a
strong pricing position in the premium segment, volume growth has
been driven by economy brands like Colgate Cibaca (leader in the
economy segment). CPIL’s brand Cibaca has carved a niche for itself in
the rural and semi-urban markets by registering robust volume growth of
around 11-12%. As Cibaca is a low priced product, the growth is
indicative that rural consumers are gradually shifting from tooth powder
to toothpaste. Since over 35% of rural households still use non-dentifrice
products like ash, charcoal, neem sticks, salt, husk and tobacco to clean
their teeth, we believe the company can tap the immense rural Indian
opportunity by proactively converting non-dentifrice users to
toothpowder and gradually to toothpaste. According to the company, the
| 10 SKU for toothpaste has become more crucial for the company
compared to | 5 earlier. This reflects that rural consumers are increasing
spend on the oral care category and increasing consumption frequency.
In the last three to five years, higher growth in rural incomes compared
to growth in urban income has driven the toothpaste penetration in rural
India from 42% in 2006 to 63% in 2012. CPIL leveraged on this
opportunity, increased its distribution presence in rural India and
expanded its SKUs price range to as low as | 5 packs. With higher
growth rates in toothpaste volumes recorded in the rural segment and
the company’s efforts to launch new variants in Cibaca at a lower price
point, we believe the positioning of Cibaca as a “value for money”
product will prove to be beneficial in the long term. Furthermore, while
CPIL’s current distribution reach extends to ~90% of the penetrated
market, we believe the company’s focused initiatives and campaigns in
rural areas will not only strengthen its brand equity and brand awareness
but also expand its distribution blueprint.
Strength in distribution to aid in capturing untapped markets
Though CPIL is present only in one category, its distribution reach
extends to more than 5 million retail outlets. From 2010-12, the company
increased its distribution reach by ~20% (added more than 0.8 million
outlets). The increasing distribution network in rural areas has
significantly benefited the company taking advantage of increasing rural
incomes in the last three to five years. CPIL’s direct reach is now in
almost 90% of the penetrated market, which would help it push its low
price SKUs in rural areas, premium offerings in urban markets and
driving growth in advanced oral care products.
Exhibit 17: Distribution reach (in million retail outlets)
8
7
6
5
4
3
7.2
6.0
5.8
5.6
2
5.1
4.0
1
2.9
0
HUL
ITC
Dabur
P&G
Colgate
Marico
Jyothy Lab
Source: Industry, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 11
Higher A&P expenses keeps market share intact
The company has been able to increase its operating margins
while maintaining advertisement expenditure
Consistently high advertisement expenses have helped the
company to effectively combat increasing competition in the
oral care space from HUL and P&G
Among leading oral care players, CPIL has one of the highest
advertisement & promotion (A&P) spends compared to its peers in the
oral care segment at 15.5% (FY13). By maintaining higher advertisement
expenses (~65% of total A&P expenses) the market leader has been able
to effectively drive penetration and the oral care industry’s growth
through increasing awareness of oral care hygiene and supporting its
new launches. Colgate is also focusing on advertisements on regional TV
channels, which would help it to capture rural territories.
Recently, HUL became aggressive in oral care advertisement using direct
comparative ads mentioning Colgate, which we believe would hardly
impact CPIL’s market share considering the premium in market share
than CPIL enjoys coupled with its high brand equity compared to HUL’s
brands Close-Up and Pepsodent. Though GSK has also been increasing
it’s A&P spend lately post the national launch of its sensitive care brands
Sensodyne and Parodontax, Colgate has consistently spent more than
15% of its sales in A&P, keeping its volume growth intact in spite of
increasing competition. The lately rising concern, however, is the entry
of a tough competitor P&G in the toothpaste segment with Oral-B. With
P&G’s history of being a brutal competitor (cut throat competition in
detergents with HUL) with market leaders in the segment in which it
ventures, we would remain wary of P&G’s future actions that could
impact CPIL’s margins.
However, given CPIL’s higher margins at ~21% (FY13) we believe CPIL
still has enough room to expand its advertisement expenses in case
competition in the segment gets aggressive without impacting its
margins. With the slated new launches for urban markets and increasing
reach in rural markets, we expect advertisement expenses to remain at
higher levels compared to its peers at 12.4% in FY14E and 13.3% in
FY15E without impacting margins.
Exhibit 18: A&P as % of sales for all oral care players in India (FY13)
19
17
18
15
17
17.8
16.5
16.1
15.3
16
13
15.8
15.3
15.5
15
11
9
Exhibit 19: A&P expenditure as percentage of net sales for Colgate (%)
12.8
13.6
15.6
15.5
13.3
14
12.4
13
12.4
12
7
11
5
HUL
Dabur
Colgate
P&G*
GSK
Source: Company, ICICIdirect.com, Research
* P&G corresponds to Gillette under which the company reports its oral care revenues.
A&P expenses do not include the trade incentives for P&G
ICICI Securities Ltd | Retail Equity Research
10
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14E FY15E
Source: Company, ICICIdirect.com, Research
Page 12
Pricing power and changing product mix to aid margins
Led by the company’s strong brand equity, CPIL enjoys strong pricing
power in the oral care industry. This enables it to easily pass on higher
raw material cost through increasing prices without impacting its volume
growth and concurrently expanding its gross margins. Accordingly, in
spite of ~10% increase in crude prices and increase in sorbitol prices
(key raw materials of CPIL) in the last three to five years CPIL has
reduced its raw material expenses to sales ratio from 42.9% in FY08 to
39.5% in FY13. Gross margins have, thereby, expanded from 57.1% in
FY08 to 60.5% in FY13. Other than higher prices in the existing portfolio,
the increasing number of innovative launches in sub-segments (Colgate
sensitive, sensitive pro-relief and Colgate visible white), thereby driving
premiumisation, has further aided in improving gross margins by
changing the product mix.
Going ahead, we believe that with raw material prices remaining at
current levels (crude at ~$110/barrel and sorbitol prices supported by
favourable monsoon during the year) and the company’s continuous
efforts to introduce premium products from its global portfolio, CPIL’s
gross margins would remain at elevated levels of ~60% until FY15E.
Exhibit 20: Gross margins for CPIL (in percentage)
62
60.4
61
60.7
61.0
60.5
60.5
60
59.8
59
58
57.1
56.3
57
56
55
54
53
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 13
Strong balance sheet provides further comfort
With a dominant market share in the oral care segment, the company
has consistently lowered its working capital intensity through a reduction
in debtor days and an expansion in supplier credit given its significant
buying power, thereby enabling it to register negative working capital
and maintaining healthy cash flows. This, along with a high dividend
payout ratio of around 85-90% and lower capital expenditure
requirements, has enabled the company to upkeep the high return ratios
and maintain capital efficiency. In November 2007, the company
completed a capital reduction plan, thereby reducing its share capital
from |136 crore to |13.6 crore by reducing the face value of each share
from | 10 to | 1 (returning |9/share back to shareholders). This measure
was aimed at returning the surplus cash as well as improving profitability
metrics like return on equity (RoE) and return on capital employed
(RoCE). Hence, RoE jumped from 53.3% in FY07 to 101% in FY13 while
RoCE also rose from 47.3% to 125.2% in the same period. Therefore,
given the company’s healthy cash flows, lower capital expenditure
requirements and higher dividend payouts, we expect CPIL to maintain
attractive RoCE and RoE ratios at ~120% and 91% in FY15E,
respectively.
ICICI Securities Ltd | Retail Equity Research
Page 14
Financials
Revenues to grow at 13.4% CAGR in FY13-15E
CPIL’s revenues have more than doubled in the past six years from
| 1473.4 crore in FY08 to | 3163.8 crore in FY13 (CAGR of 16.5%). The
increase has been supported by consistent volume growth in both
toothpastes (average of 11.3%) and toothbrushes (average of 13.8%)
and marginal price hikes. With one of the strongest distribution networks
and launches of new variants, we believe CPIL would be able to maintain
volume growth at ~10% in toothpastes and ~17% in toothbrushes in
oral care. Hence, supported by healthy volume growth and marginal
price hikes of 3-5%, we expect revenues to maintain growth at 13.4%
CAGR from FY13-15E. The revenue growth would also remain higher led
by increasing contribution of premium products.
Exhibit 21: Revenues (| crore) and revenue growth (YoY in %) trend
4500
3750
3000
25
21.3
13.8
15.0
17.5
15.8
20
13.2
14.3
12.6
15
2250
10
1500
750
0
5
1473
1695
1962
2221
2693
FY08
FY09
FY10
FY11
FY12
Sales (| Crore) - LHS
3164
3562
4070
FY13
FY14E
FY15E
0
% growth - RHS
Source: Company, ICICIdirect.com Research
Margins to improve to 20.9% by FY15E
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. Going ahead, we expect
CPIL to maintain high EBITDA margins at 19.3% (FY14E) and 20.9%
(FY15E) as premiumisation gains traction.
Exhibit 22: EBITDA margins (%) trend
24
21.6
22
21.5
20.2
20.9
20.8
19.3
20
18
16
15.4
15.4
FY08
FY09
14
12
10
FY10
FY11
FY12
FY13
FY14E
FY15E
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 15
Net profit to grow at 11.7% CAGR in FY13-15E
CPIL’s profits have grown at 16.5% CAGR in FY08-13 aided by improving
margins and lower tax liability (tax benefits from Baddi facility). However,
these tax benefits would end by FY14E, which would increase the
company’s tax rate from 25.1% in FY13 to 28.5% in FY15E. Hence, we
expect profit growth to moderate slightly to 11.7% CAGR in FY13-15E
from | 497 crore in FY13 to | 620 crore in FY15E.
Exhibit 23: PAT (| crore) trend
700
576
600
500
423
400
300
232
50
40
497
446
405
620
30
290
20
200
10
100
0
0
FY08
-100
FY09
FY10
FY11
FY12
PAT (| crore) - LHS
FY13
FY14E
FY15E
-10
% growth
Source: Company, ICICIdirect.com Research
Exceptional return ratios
CPIL has 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 buy-back 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 increase
to ~90% from FY15E onwards, thereby keeping return ratios at elevated
levels. We have modelled a small capex of | 190 crore in FY14E and | 90
crore in FY15E (on account of the new facilities in Sanand, Gujarat and
Sricity, Andhra Pradesh), thereby maintaining RoE at ~91% until FY15E
and RoCE at ~120% until FY15E.
Exhibit 24: Return ratios (%) trend
Exhibit 25: Dividend payout (%) and dividend per share (| per share)
130
150
100
120
130
80
110
110
90
100
70
90
50
80
30
FY08
FY09
FY10 FY11 FY12 FY13 FY14E FY15E
RoCE (%) - LHS
RoNW(%) - RHS
Source: Company, ICICIdirect.com, Research
ICICI Securities Ltd | Retail Equity Research
45
40
35
30
25
20
15
10
5
0
60
40
20
0
FY08
FY09
FY10
FY11
FY12
Dividend Per share (|) - RHS
FY13
FY14E FY15E
Dividend Payout (%) - LHS
Source: Company, ICICIdirect.com, Research
Page 16
Risks & Concerns
Deteriorating fundamentals may take toll on volumes
CPIL, which currently dominates the oral care category with an overall
market share of ~55% (April, FY13), has witnessed robust volume
growth in the past. Although there has been no sign of a decline in
volumes, given the current slowdown in consumer demand and
increasing competition this risk looms on the horizon. Further, even if
volume growth is not impacted, downtrading and lower-than-expected
growth in premiumisation could impact value growth and keep EBITDA
margin and PAT growth moderate.
Sole dependence on oral care segment
With ~95% of CPIL’s revenues being derived from the oral care business
there is large dependence on one category for a significant portion of
revenues. We believe any adverse impact witnessed in this category can
hamper the company’s growth prospects dramatically.
Susceptible to inflationary pressures
Any exuberant rise in crude prices (used for packaging) and chemicals
such as sorbitol (a maize derivative) would adversely affect the raw
material costs of the company, thereby hampering margins.
New entrants to intensify competition
Although CPIL commands a leadership position in the oral care category,
a threat of competition exists from new entrants such as GSK and P&G,
which could consequently erode CPIL’s market share.
Excise benefits at Baddi manufacturing facility
Colgate’s tax rate has consistently increased over the past four years, as
its toothpaste manufacturing facilities at Baddi and Himachal Pradesh
were removed from 100% tax exemption from March 2010 onwards.
They have henceforth been shifted under 30% tax exemptions until FY15
after which there would be no exemptions. Further, with the two new
facilities coming up, at Sanand and Sricity, CPIL’s tax rate would remain
lower until FY15 as these new facilities enjoy some exemptions.
Accordingly, we expect CPIL’s tax rate to increase by ~340 bps to 28.5%
by FY15E from 25.1% in FY13E. However, after FY15E all tax exemptions
in all facilities would become nil putting the company under the flat 30%
tax bracket post FY15E.
Exhibit 26: Tax rate (%) trend
30
25
20
15
10
20.7
16.0
5
22.6
24.1
25.1
25.8
FY11
FY12
FY13
FY14E
28.5
12.7
0
FY08
FY09
FY10
FY15E
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 17
Valuation
We have valued the stock on a triangulated value of P/E, EV/EBITDA and
DCF methodology, assigning it a target price of | 1365/share.
Historically, Colgate has traded at ~6% discount to the FMCG Index.
However, in the last six months, the stock has been trading at similar
multiples as the FMCG Index. We believe the shrinkage in discount has
been led by CPIL’s ability to maintain strong volume growth compared to
slowing growth in other FMCG companies and increasing competition in
the oral care space. We believe the oral care industry in India has the
space to grow further. Also, the potential of increasing penetration
levels, per capita consumption and premiumisation is very high. Hence,
this throws up a big opportunity for the market leader in the category.
With consistent earnings growth, high dividend payout and exceptional
return ratios, CPIL is one of the preferred stocks in the FMCG sector.
PE band
At the CMP, the stock is trading at 32.5x its FY14E Adj. EPS of |38.5 and
27.5x its FY15E Adj. EPS of | 45.6, which is merely 10% premium to its
historic average (average has been 25x one year forward P/E). With
healthy growth in revenues and earnings at 16.5% CAGR from FY08-13,
dominance in oral care, consistent volume growth, high visibility in
earnings growth and excellent return ratios, we believe this premium is
justified. Going ahead, we expect the company’s revenue and earnings
to post a CAGR of 13.4% and 11.7%, respectively from FY13-15E. We
assign the stock a P/E multiple of 30x its FY15E EPS of | 45.6 to arrive at
a fair value of | 1367/share.
Exhibit 27: PE band
2000
1800
1600
1400
1200
1000
800
600
400
200
Close Price
14x
20x
26x
32x
Mar-14
Nov-13
Jul-13
Mar-13
Nov-12
Jul-12
Mar-12
Nov-11
Jul-11
Mar-11
Nov-10
Jul-10
Mar-10
Nov-09
Jul-09
Mar-09
Nov-08
Jul-08
Mar-08
0
38x
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 18
DCF valuation
Using the DCF methodology, we have arrived at a fair value of
| 1351/share, considering a terminal growth of 3.5% and weighted
average cost of capital (WACC) of 10.7%. We have assumed the
company would witness revenue growth (CAGR FY13-25E) of 14.7%,
operating margins of 21% and higher tax rate of ~30% till 2025 given
that the Baddi facility is coming out of tax breaks.
Exhibit 28: DCF valuation
| crore
EBITDA
Depreciation
Tax
NOPAT
Capex
Change in WC
FCF
FY13
FY14E
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
FY21E
FY22E
FY23E
656.8
43.7
166.3
446.8
102.5
(167.7)
555.7
653.8
49.1
200.0
404.7
190.0
(18.0)
281.8
816.7
59.7
247.0
510.0
90.0
(37.6)
517.3
982.9
46.8
280.8
655.3
56.2
46.8
599.1
1,130.4
53.8
323.0
753.6
64.6
(63.9)
806.7
1,299.9
61.9
371.4
866.6
74.3
(73.5)
927.7
1,494.9
71.2
427.1
996.6
85.4
(84.5)
1,066.9
1,719.2
81.9
491.2
1,146.1
98.2
(97.2)
1,226.9
1,977.1
94.1
564.9
1,318.0
113.0
(111.7)
1,411.0
2,273.6
108.3
649.6
1,515.7
129.9
(128.5)
1,622.6
2,614.6
124.5
747.0
1,743.1
149.4
(147.8)
1,866.0
DCF Valuation
PV of firm
Less: Current Debt
Total PV of Equity
Cash Per Share
Number of Equity Shares (Cr)
DCF - Target price (|)
| crore
17,937.4
17,937.4
31.5
13.6
1,350.5
Assumptions
WACC
Revenue CAGR over FY13 - FY25E
Terminal Growth
10.7%
14.7%
3.5%
Source: Company, ICICIdirect.com Research
Exhibit 29: Sensitivity to WACC & terminal value
Terminal Growth
Rate %
WACC %
9.7%
10.2%
10.7%
11.2%
11.7%
2.5%
1,466
1,350
1,248
1,160
1,082
3.0%
1,535
1,407
1,296
1,200
1,116
3.5%
1,615
1,472
1,351
1,245
1,154
4.0%
1,710
1,549
1,413
1,297
1,197
4.5%
1,823
1,639
1,486
1,357
1,246
Source: Company, ICICIdirect.com Research
Triangulated Valuation
We assign a weight of 0.5, 0.4 and 0.1 to the values arrived at from DCF,
P/E and EV/EBITDA valuation, respectively. We arrive at a target price of
|1365/share.
Exhibit 30: Triangulated Valuation
Methodology
DCF
P/E
EV/EBITDA
Target Price
Fair Value (|)
1350.5
1366.9
1424.7
Weightage
0.5
0.4
0.1
Value (|)
675.3
546.7
142.5
1364.5
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 19
Peer comparison
Given that the tax rate for the company would increase to 30% from
FY16 onwards as tax benefits for the Baddi facility expire, the stock is
trading at a discount to other MNC FMCG stocks like HUL and Nestlé
India. This is mainly on account of the impact on earnings due to the
higher tax rate. Considering this, we believe the stock is trading at
attractive multiples. Though Colgate is better placed in terms of
valuation multiple over other FMCG stocks and sustenance of volume
growth, we believe the risk of increasing competition in the oral care
space can affect volume growth, going forward. We initiate coverage on
Colgate with a target price of | 1365 and assign a HOLD
recommendation to the stock.
Exhibit 31: Peer comparison
ITC
HUL
Nestle
Dabur
Marico
Colgate
Mcap
(| crore)
247896
124344
52942
28061
13476
17054
Sales CAGR (%)
(FY08-13)
16.2
13.0
18.8
21.1
19.2
16.5
Sales CAGR (%)
(FY13-15E)
13.1
10.0
12.0
15.2
14.7
13.4
EPS CAGR (%)
(FY08-13)
18.4
15.5
20.9
18.1
17.2
16.5
EPS CAGR (%)
(FY13-15E)
17.4
9.3
12.5
23.0
25.8
11.7
FY13
33.3
44.5
48.1
36.6
34.0
34.3
PE (x)
FY14E FY15E
28.4 24.2
40.4 37.0
45.4 39.2
29.4 24.2
24.9 21.5
32.5 27.5
Price/sales(x)
RoE (%)
FY13 FY14E FY15E FY13 FY14E FY15E
8.4
7.6
6.5
33
34
36
4.9
4.5
4.1
142
106
95
6.4
5.8
5.1
59
51
51
4.6
3.9
3.4
40
40
40
2.9
2.8
2.2
25
23
23
5.4
4.8
4.2
101
91
91
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 20
Tables
Exhibit 32: Profit & Loss Account
(| Crore)
(Year-end March)
Net Sales
Other Operating Income
Total Operating Income
Other Income
Total Revenue
Raw Material Expenses
Employee Expenses
Marketing Expenses
Administrative Expenses
Power & Fuel
Manufacturing
Royalty
Misc.
Total Operating Expenditure
EBITDA
Interest
PBDT
Depreciation
PBT
Total Tax
PAT after MI
Adjusted PAT
EPS
EPS (Adjusted)
FY11
2,220.6
2,220.6
106.8
2,327.4
872.0
193.2
350.5
86.1
14.5
84.3
113.1
57.9
1,771.6
449.0
1.6
554.2
34.2
519.9
117.4
402.6
403.2
29.8
FY12
2,693.2
2,693.2
50.7
2,743.9
1,050.2
215.6
412.1
96.1
17.1
102.7
141.0
79.9
2,114.7
578.5
1.5
627.7
39.3
588.4
141.9
446.5
446.5
32.8
FY13
3,163.8
3,163.8
49.9
3,213.7
1,250.2
249.4
490.8
112.7
19.6
121.2
167.9
95.2
2,507.0
656.8
706.7
43.7
663.0
166.3
496.8
496.8
36.5
FY14E
3,562.2
40.6
3,602.8
60.5
3,663.3
1,408.4
248.9
441.8
809.2
2,908.3
694.5
755.0
49.1
776.5
200.0
576.5
524.0
42.4
FY15E
4,070.2
40.6
4,110.8
69.0
4,179.7
1,637.6
291.0
539.3
152.6
30.5
183.2
215.7
203.5
3,253.5
857.3
926.3
59.7
866.6
247.0
619.6
619.6
45.6
29.6
32.8
36.5
38.5
45.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 21
Exhibit 33: Balance Sheet
(| Crore)
(Year-end March)
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Other Non Current Liabilities
LT Provisions
FY11
13.6
370.5
384.1
0.1
0.9
26.9
FY12
13.6
421.8
435.4
0.8
30.1
FY13
13.6
476.0
489.6
0.9
34.9
FY14E
13.6
617.3
630.9
0.9
34.9
FY15E
13.6
665.7
679.3
0.9
34.9
Liability side total
411.9
579.8
324.8
255.0
8.2
263.3
46.0
466.2
613.2
358.7
254.4
69.4
323.8
59.2
525.3
673.5
392.9
280.7
102.0
382.6
37.1
666.6
863.5
442.0
421.5
102.0
523.5
77.1
715.1
953.5
501.7
451.8
102.0
553.8
97.1
153.7
75.3
64.6
7.6
395.1
9.6
706.0
217.7
87.3
102.1
6.9
309.8
723.7
185.3
81.2
84.5
3.3
428.8
10.0
793.0
244.0
109.3
111.3
8.3
477.5
8.9
959.3
278.8
122.7
130.0
8.0
513.2
7.7
1,060.4
378.6
369.0
466.6
536.8
591.0
31.4
212.2
622.2
83.9
18.3
0.5
411.9
77.2
217.2
663.4
60.3
22.5
0.4
466.2
64.6
250.2
781.4
11.6
22.4
70.3
1.3
525.3
77.1
303.1
916.9
42.3
22.4
1.3
666.6
96.8
332.1
1,019.9
40.5
22.4
1.3
715.1
Total Gross Block
Less: Acc. Depreciation
Net Block
Total CWIP
Total Fixed Assets
Other Investments
Current Asstes
Inventory
Debtors
Loans and Advances
Other Current Assets
Cash
ST Investments
Total Current Assets
Current Liabilities
Creditors
Provisions
Other CL
Total Current Liabilities
Net Current Assets
Deferred Tax Assets
LT loans & Advances
Other Non CA
Assets side total
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 22
Exhibit 34: Cash Flow Statement
(| Crore)
(Year-end March)
Profit after Tax
Depreciation
Interest Paid
CF before WC changes
Inventory
Debtors
Loans and Advances
Other Current Assets
ST Investments
Net Increase in CA
Creditors
Provisions
Other CL
Net Increase in CL
Net CF from operations
FY11
405.2
34.2
1.6
441.0
(43.1)
(65.5)
52.1
(2.2)
(9.6)
(68.3)
(48.1)
(93.4)
212.2
70.7
443.4
FY12
446.5
39.3
1.5
487.3
(64.0)
(12.0)
(37.4)
0.8
9.6
(103.0)
(9.5)
45.8
5.0
41.2
425.5
FY13
496.8
43.7
540.5
32.4
6.1
17.6
3.6
(10.0)
49.6
97.6
(12.6)
33.0
118.1
708.1
FY14E
576.5
49.1
625.6
(58.7)
(28.1)
(26.8)
(5.1)
1.1
(117.5)
70.1
12.4
52.9
135.5
643.6
FY15E
619.6
59.7
679.3
(34.8)
(13.4)
(18.8)
0.3
1.2
(65.4)
54.2
19.7
29.0
103.0
716.9
Deferred Tax Assets
LT loans & Advances
Other Non CA
Other Investments
(Purchase)/Sale of Fixed Assets
Other Non Current Liabilities
LT Provisions
Net CF from Investing
(0.4)
(0.5)
(25.0)
(44.4)
0.9
26.9
(42.5)
(4.3)
0.1
(13.2)
(99.9)
(0.1)
3.2
(114.2)
0.1
(69.9)
(1.3)
22.1
(102.5)
0.1
4.8
(146.6)
70.3
(40.0)
(190.0)
(159.7)
(20.0)
(90.0)
(110.0)
0.1
(0.1)
Unsecured Loan
Interest Paid
Total Outflow for dividend
Other Adj./(writeoff) in GR
Net CF from Financing
(4.6)
(1.6)
(348.9)
1.6
(353.4)
(1.5)
(395.1)
(396.7)
(442.6)
(442.6)
(435.2)
(435.2)
(571.2)
(571.2)
Net Cash flow
Cash at the beginning
Closing Cash
47.6
347.6
395.1
(85.3)
395.1
309.8
119.0
309.8
428.8
48.7
428.8
477.5
35.7
477.5
513.2
Secured Loan
-
-
-
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 23
Exhibit 35: Ratio Analysis
(Year-end March)
Per Share Data
EPS
Cash EPS
BV
Operating profit per share
FY11
FY12
FY13
FY14E
FY15E
29.8
32.3
28.2
33.0
32.8
35.7
32.0
42.5
36.5
39.7
36.0
48.3
42.4
46.0
46.4
51.1
45.6
50.0
50.0
63.0
20.2
18.2
21.5
16.6
20.8
15.7
19.3
16.0
20.9
15.1
105.5
108.0
98.4
102.5
123.8
95.8
101.5
125.2
94.6
91.4
102.3
86.5
91.2
117.4
86.7
Valuation Ratios
EV / EBITDA
P/E (Adjusted)
EV / Net Sales
Sales / Equity
Market Cap / Sales
Price to Book Value
37.1
42.3
7.5
5.8
7.7
44.4
28.9
38.2
6.2
6.2
6.3
39.2
25.3
34.3
5.3
6.5
5.4
34.8
23.9
32.5
4.7
5.6
4.8
27.0
19.3
27.5
4.1
6.0
4.2
25.1
Turnover Ratios
Asset turnover
Debtors Turnover Ratio
6.0
29.5
6.1
30.9
6.4
39.0
6.0
32.6
5.9
33.2
Creditors Turnover Ratio
5.9
7.3
6.8
6.6
6.9
Solvency Ratios
Debt / Equity
Current Ratio
Quick Ratio
0.0
1.1
0.9
1.1
0.8
1.0
0.8
1.0
0.8
1.0
0.8
Operating Ratios
EBITDA / Total Operating Income
PAT / Total Operating Income
Return Ratios
RoE
RoCE
RoA
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 24
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
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ICICI Securities Ltd | Retail Equity Research
Page 25