Sunday, November 23, 2014

COLGATE PALMOLIVE (INDIA) LTD : SMILING ALL THE WAY !!!

Scrip Code: 500830 COLPAL

CMP:  Rs. 1,893.20; Accumulate at Every Dips.
Short term Target - Rs. 2,060; Medium to Long term Target – Rs. 2,366; STOP LOSS – Rs. 1741.74; Market Cap: Rs. 25,746.16 Cr; 52 Week High/Low: Rs. 2049.00 / Rs. 1235.20.
Total Shares: 13,59,92,817 shares; Promoters : 6,93,56,336 shares – 51.00 %; Total Public holding : 6,66,36,481 shares – 49.00 %; Book Value: Rs. 44.11; Face Value: Rs. 1.00; EPS: Rs. 37.47; Dividend: 2700.00 % ; P/E: 50.52 times; Ind. P/E: 47.16; EV/EBITDA: 33.28.
Total Debt: ZERO; Enterprise Value: Rs. 25,596.88 Cr.

COLGATE PALMOLIVE (INDIA) LTD: The Company was founded on 23 September, 1937 and is based in Mumbai, India. The company is the subsidiary of Colgate Palmolive Company of USA. The company offered 11,79,000 equity shares of Rs. 10 each at a premium of Rs. 15.00 to the general public in November, 1978. Colgate-Palmolive (India) Limited provides oral care products. The company has its good Bonus history as it gave 1:1 bonus in 1982, 1:1 in 1985, 1:1 in 1987, 1:1 in 1989, 3:5 in 1991 and finally 1:1 in 1993. In November 2007, the Company in its First-of-its-Kind investor friendly move announced a Reduction of Share Capital under section 100 of Companies act of 1956. It gave back Rs. 122.40 Cr to its shareholders by reducing the face value of its equity shares from Rs. 10 to Re. 1.00 and accordingly its equity share capital came down from Rs. 135.99 Cr to Rs. 13.59 Cr. And Rs. 9 per share was paid as a ‘Deemed Dividend’ and was tax free in the hands of shareholders. The share of the Colgate Palmolive after this got relisted on BSE on December 17, 2007 at Rs. 380 per share. The company offers products that include toothpastes, toothpowder and toothbrushes under the 'Colgate' brand, as well as a specialized range of dental therapies under the banner of Colgate Oral Pharmaceuticals. The company also provides a range of personal care products under the brand name 'Palmolive'. The oral care product mix includes: Toothpastes which comprises of Colgate Dental Cream, Colgate Total 12, Colgate Kids Tooth Paste, Colgate Fresh Energy Gel, Colgate Herbal, Colgate Herbal White, and Colgate Cibaca Top. Its Tooth Brushes products comprises of Colgate Kids, Colgate Navigator Plus, and Colgate Sensitive, Colgate Extra-Clean, Colgate Super 55, Colgate Cibaca Top, Colgate Motion, Colgate Massager, Colgate Super Junior Flexible, and Colgate Super Child Flexible. Other products offered by the company include tooth powder and whitening products. Its Personal care product mix includes: Shower gel which comprises of Palmolive Aroma Shower Gel – Sensual, Palmolive Aroma Shower Gel – Relax, and Palmolive Aroma Shower Gel – Revive. It’s Bar soaps products comprise of Palmolive Aroma Soap – Revive and Palmolive Aroma Soap – Relax. Company’s Liquid hand wash products comprise of Palmolive Aroma Liquid Hand Wash – Revive and Palmolive Aroma Liquid Hand Wash – Relax. Colgate’s Talcum Powder products comprises of Palmolive Aroma Talcum Powder - Revive and Palmolive Aroma Talcum Powder – Relax. 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. Colgate Palmolive (India) Ltd is locally compared with Amar Remedies Ltd, Farmax India Ltd, Gillette India Ltd, Godrej Consumer Products Ltd, Hindustan Unilever, JHS Svendgaard Laboratories Ltd, Jyothy Laboratories, Nirma Ltd, Procter & Gamble Ltd and Globally with Procter & Gamble of USA, Unilever PLC of UK, Beiersdorf AG of Germany, Reckitt Benckiser PLC of UK, Kimberly-Clark Corporation of USA, Church & Dwight Co., Inc of USA, Clorox Company of USA, Paos Holdings Berhad of Malaysia, Niitaka Co ltd of Japan.

Investment Rationale:

Colgate Palmolive (India) Limited is India’s leading provider of scientifically proven oral care products with multiple benefits at various price points. Colgate has a market share of 43.6 % in the oral care in India. India’s oral care market is estimated around $100 Cr and is expected to grow at a CAGR of about 14 % during 2011–2015, which is much higher than the global growth rate in this sector. This has led to an increase in the number of oral care companies entering the space, thereby stiffening the competition. The combined share of all the local brands, including Vicco, Ajanta, Anchor, Smyle and Baidyanath has now slipped to 2 % in calendar year of 2013 from more than 5 % from two years ago. Regional players had over 15 % share in the toothpaste market some 10 years ago. So the big marketers such as Colgate, Hindustan Unilever and the Indian player Dabur have widened their reach to almost all rural and urban markets and have slashed its entry-level prices to Rs. 5.00 and Rs. 10 which is giving a hit to local brands. Also, multinationals like Procter & Gamble (P&G) and GlaxoSmithKline (GSK) have now entered the oral-care market, increasing the competition, which is affecting small & regional players. GSK's Sensodyne has already gathered more than 2.3 % share in the Indian oral-care market. Sensodyne has crossed Rs. 100 crore in annual revenues and it leads the sensitive toothpaste category with a 27 % market share, while P&G's mass brand Oral B has garnered a market share of 0.30 % in the first six months of its launch. Companies such as Dabur having a market share of 11 % and Hindustan Unilever have doubled their rural reach over the past couple of years and have grown their market share. Market leader Colgate, too, increased its share in the toothpaste segment to 54 % last year, from 51 % in 2011. In India only 42 % of the people living in villages and small towns use tooth-paste; this proportion is expected to increase with the rising rural income and greater awareness about oral hygiene through advertisements, dental camps and free dental checkups. Colgate has done very well in this regard by building its strong distribution strength across rural India. Colgate now has the highest reach among all the consumer products companies in the country. Also, more than 30 % of India’s population suffers from gum sensitivity and oral hygiene problems. Thus, India’s urban population is continuously upgrading from regular tooth-pastes to dental creams due to which this category is growing at 30 % to 40 % annually. To carter the urban modern population, Colgate has from time to time is introducing innovative products like Colgate SlimSoft Charcoal launched recently in August 2014, which is India’s first and only toothbrush with super slim tip bristles infused with Charcoal priced at Rs. 60. Similarly it also introduced Colgate SlimSoft last year; it also launched Sugar Acid Neutraliser, Visible white RegimenOver 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 such as sensitive toothpaste, gum care toothpaste, electric brush, kids brush, etc. It has been aggressive on extension of its premium portfolio to capture the up-trading consumers. In FY14, it launched two varieties of toothpastes like Active healthy White, Max Fresh Tea and Slim Soft Toothbrushes. Hence, with constant innovations and higher A&P spends, it is believed that Colgate would continue to remain the dominant player and be the largest beneficiary of increasing penetration levels in the country which is currently at 75 %. Colgate Palmolive also falls under FMCG category and this sector is the fourth largest in the Indian economy and has a market size of $13.1 billion. The FMCG market is all set to treble at US$ 33.4 billion by 2015. The 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. Food products and personal care together make up two-third of the sector’s revenues. Rural India accounts for more than 70 % of the Indian population and accounts for 50 % of the total FMCG market. With the changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $8,000 Cr by 2026 in towns with population of up to 10 lakh. 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 the growth in this sector will continue to remain robust. Colgate has done well in this regard by building strong distribution strength across rural India. Colgate now has the highest reach among all consumer products companies in the country.

Outlook and Valuations:
Colgate has been present in India for more than 76 years & has products across all orla care categories and prices points. It is one of the most popular & preferred oral hygiene brands in the coountry. It has wide range of toothpastes and toothbrushes are very well known and has strong brand recall. The Company also provides a range of personal care products under the ‘Palmolive’ brand name. Colgate has been ranked as India’s No. 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. Colgate Palmolive is the largest player in the oral care segment in India with the market share as of June, 2014 of about 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 with its brand Oral B, Colgate’s market share has only strengthened. Colgate 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 42.6 % for the same period. Colgate is believed to be the second largest player in the toothpaste category, HUL, is losing its market share with Dabur India inching share from 10 % to 11 % in last two years. Further, regional players like Vicco, Ajanta, Anchor, Smyle and Baidyanath have also witnessed a loss in market share in toothpastes. On performance side, Colgate Palmolive reported a 10.9 % increase in sales to Rs. 990 Cr. It reported PAT growth of 18.3 % on 2.40 % margin expansion led by 7 % volume growth in toothpaste to Rs. 130 Cr. Its EBITDA margins expanded 2.40 % as 0.90 % higher staff costs. EBITDA increased by 27.5 % to Rs. 186 Cr. Colgate’s Toothpaste volumes were up by 7 % with overall volumes up 5 %. Rural demand has been better than urban demand which declined at higher pace. Colgate’s Toothpaste market share was up 0.70 % at 56.7 % v/s 56 % in JanSep 2013. Colgate’s Toothbrush market share was up by 1.40 % YoY to 42.6 %. Colgate Palmolive’s new launches like Sugar Acid Neutraliser, Visible white Regimen and Colgate Slim soft toothbrush’s success is ensuring strong visibility. Colgate Palmolive enjoys strong Brand recall along with strong innovations in pipeline and has focused approach which ensures robust growth for the company. Company commands premium valuations due to strong brand, sustained high ROE and ROCE of more than 100 % and dividend pay-out ratio of 75 % & also there's a possibility of bonus issues by the company as it has been more the two decades from the last bonus given by the company so investors can expect bonus soon as company has enough reserves. Higher dividend payout exuberates confidence on future cash generation. At the current market price of Rs. 1,873.20, the stock is trading at a PE of 43.76 x FY15E and 36.80 x FY16E respectively. The company can post Earning per share (EPS) of Rs. 42.80 for FY15E and Rs. 50.90 for FY16E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in COLGATE PALMOLIVE INDIA LTD with a Short term target of Rs. 2,060 and my conservative  price for Medium to Long term investment is Rs. 2,366.00 but looking at the potential of the company to earn it could give Rs. 3000 + in near next 3 years time .

KEY FINANCIALSFY13FY14FY15EFY16E
SALES ( Crs)3,163.903,578.204,089.504,772.90
NET PROFIT (₹ Cr)496.80484.30582.10692.80
EPS ()36.5035.6042.8050.90
PE (x)47.0048.2040.1033.70
P/BV (x)47.7038.9035.6032.30
EV/EBITDA (x)34.8034.8027.5022.00
ROE (%)101.4690.0074.7068.85
ROCE (%)153.28127.54118.44109.85

I would buy COLGATE PALMOLIVE (INDIA) LTD for Medium to Long term for target of Rs. 2,366.00 and for the shorter term the target would be Rs. 2,060.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 1,741.74 on every purchase(Why Strict stop loss of 8 % ?) - Click Here


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Thursday, November 13, 2014

LIBERTY SHOES LTD : INVEST WITH COMFORT !!!

Scrip Code: 526596 LIBERTSHOE
CMP:  Rs. 279.25; Buy at current levels. Short Term Target: Rs. 305; Medium to Long Term Target: Rs. 400; STOP LOSS – Rs. 256.90; Market Cap: Rs. 475.67 Cr; 52 Week High/Low: Rs. 351.15 / Rs. 86.25.
Total Shares: 1,70,40,000 shares; Promoters : 1,10,62,507 shares – 64.92 %; Total Public holding : 59,77,493 shares – 35.07 %; Book Value: Rs. 80.73; Face Value: Rs. 10.00; EPS: Rs. 7.85; Dividend: 15.00 %; P/E: 35.56 times; Ind. P/E: 35.36; EV/EBITDA: 14.14.
Total Debt: Rs. 109.99 Cr; Enterprise Value: Rs. 578.51 Cr.

LIBERTY SHOES LIMITED: Liberty Shoes Ltd was founded in 1954 and is based in Karnal, Haryana, India. Liberty Shoes Limited is engaged in manufacturing and retailing of footwear and accessories through its retail outlets and wholesale networks in India and internationally. It provides school shoes, sports sneakers, ballerinas, adventure shoes, corporate formal shoes, and relaxed slip-ons. The Company came with an IPO in 1992 with a premium of Rs. 99.00 of face value Rs. 10 at Rs. 109 per share. The company gave bonus shares in October 2005 in the ratio of 1:1. Liberty Shoes Ltd manufactures and sells leather footwear in India and internationally & has worldwide distribution network of 150 distributors, 400 exclusive showrooms and more than 6,000 multi-brand outlets. The company offers its products for men, women, boys, and girls under their brands like Coolers, Footfun, Force 10, Fortune, Gliders, Prefect, Senorita, TipTopp, Warrior, and Windsor. Liberty Shoes Limited markets its products through distributors, exclusive showrooms and multi brand outlets, as well as on online portal. The company has its presence in more than 25 countries, which includes major international fashion destinations like France, Italy and Germany. Liberty Shoes Ltd is locally compared with Bata India Ltd, Mirza International Ltd, Sarup Industries Ltd, Superhouse Ltd, Relaxo Footwares Ltd and globally compared with American Apparel Inc of USA, Carters Inc of USA, Columbia Sportsware Co of USA, Nike Inc of USA, PUMA SE of USA, Arab Cotton Ginning of UAE, Delta Galil Ind of UAE, Malek Spinning Mills Ltd of UAE, Squre Textiles Ltd of UAE, Adidas AG of Europe, LVMH-Moet Vuitton of Europe.

Investment Rationale:
Liberty Shoes Ltd engages in manufacturing and sale of leather footwear in India and internationally. The company’s products for men include unisex sandals and slip-ons; formal footwear; sportswear; and beachwear, casual, and formal footwear in leather and non-leather material. It also offers heels and strappy styles in slip-ons, sandals, and belles for women; sandals, sports shoes, lycra uppers with no laces, and school shoes for kids; and safety footwear & Foot gears for the workforce at construction sites, engineering sites, oil refineries, and healthcare sectors, as well as variety of formal shoes for company executives. In addition, the company provides anti-static, anti-slippage, and non-tearable protective boots as resistant to electrical shock, mechanical crush, chemical corrosion, and heat and cold for electrical, thermal, chemical, and slippage risking professionals, power plant technicians, alkali unit workers, and sports practitioners. India is the world's second largest footwear producing country in the world after China. The per capita footwear consumption in India has gone up from 1.4 pairs per year in 2004 to 2.5 pairs per year in 2013 & it is still much below the average per capita footwear consumption of 5 pairs per year in developed countries. The size of Indian footwear market is around Rs. 26,300 Cr and is expected to reach to around Rs. 38,700 Cr with a CAGR of 15 % by 2015. At present, Men's footware contributes around 60 % of footwear market as against Women's footware share of 30 %. Men's footware market is growing at a CAGR of 10 % & Women's footware market is growing at a much faster CAGR of 20 %. India controls around 15 % of annual global footwear production. Indian footwear retail is mainly unorganized market with around 60 % of market share. The size of the organised sector which was around Rs. 7,500 Cr in 2010 increased to Rs. 10,000 Cr in 2011, posting a growth at a CAGR of 30 % every year since 2008. The market is expected to reach Rs. 17,500 Cr by 2015 growing at a CAGR of 19 % p.a. Nearly 90 % of India's export of footwear goes to European Countries and the USA. The European countries and the USA are major consumers for the Indian footwear. India produces more of gents' footwear while the world's major production is women's footwear. The future growth of the footwear industry in India will continue to be market-driven and oriented towards EU and US markets. With technology and quality of the footwear improving year after year, Indian Footwear industry is poised for a global revolution worldwide. Liberty has increased its presence across the globe with a primary focus on the African market and will also look into increasing its foothold in the existing markets. And with growing foot ware markets Liberty will surely be among the ones to get benefited.

Outlook and Valuation:

Liberty Shoes Ltd is the second largest foot ware manufacturer in India after BATA. It offers its products under the brand names: Diva, Coolers, Fortune, Force 10, Gliders, Windsor, Senorita, Tiptopp, Footfun, Prefect, Warrior, Freedom, and Workman brand names. The company markets its products through distributors, exclusive showrooms, and multi-brand outlets. The company is amongst the top 5 manufacturers of leather footwear of the world producing more than 50,000 pairs a day using a capacity of more than 3 lakh square feet of leather per month. The company has its presence in more than 25 countries, which includes major international fashion destinations like France Italy and Germany, is its worldwide distribution network of 150 distributors, 400 exclusive showrooms and more than 6000 multi-brand outlets. Two years back Liberty decided to go for the franchisee retail model in order to tap on the local market knowledge of the franchisee and use that as a base for strengthening and broadening its retail network. Its model had ROI of 25 % with breakeven period of One year. Today Liberty has around 400 exclusive franchisee showrooms in large, medium and small cities including 15 cities of Middle East. Liberty has emerged as one of the most successful Indian franchisee chains of the current times. Liberty was recently recognised developing the best business model for franchising across industries in the country as well as for demonstrating excellence through the successful operation of satisfied franchisees over a sustained period. On Financial side, Liberty Shoes Ltd reported streamlined Q2FY15E results. The company has restated previous year figures to include Liberty Retail Revolutions Ltd, the recently merged retail subsidiary. It reported Net sales which were lower by 2.8 % at Rs. 143.8 Cr. Domestic sales grew 35.3 % yoy to Rs. 134.3 Cr in Q2FY15 and exports grew 14.7 % yoy to reach Rs. 15.74 Cr. The company has mentioned that it has completed major portion of the institutional order of Rs. 48 Cr which was missed last quarter. The balance order would be completed by Q3FY15E. During the quarter, the company added 16 new exclusive stores in Company Owned & Company Operated (COCO) & franchise format. Sales in own stores grew by 20 % yoy to Rs. 20 Cr in Q2FY15 against Rs. 17.3 Cr in Q2FY14. The company plans to add 80 to 100 more exclusive stores in franchise and COCO format in FY15E. As company has higher proportion of low margin institutional orders led pressure on operating margins. EBITDA margin stood at 6 % in Q2FY15 against 7.5 % in Q2FY14, contraction of 1.53 % bps. EBITDA of the company grew by 5.1 % yoy to Rs. 8.6 Cr in Q2FY15 from Rs 8.2 Cr in Q2FY14. Liberty’s Adj. PAT stood at Rs. 2.70 Cr in Q2FY15 against Rs. 2.00 Cr in Q2FY14, an increase of 34.7 % yoy. Liberty On half yearly basis, the net sales grew by 10.7 % yoy to Rs. 245.4 Cr in H1FY15 from Rs. 221.6 Cr in H1FY14. Domestic sales grew 9.6 % yoy to Rs. 229.1 Cr in H1FY15 from Rs. 209.10 Cr in H1FY14. Exports stood at Rs. 27.2 Cr in H1FY15 against Rs. 20.70 Cr in H1FY14, implying growth of 31.7 % yoy. Adj. PAT stood at Rs. 6 Cr in H1FY15 against Rs. 5.3 Cr in H1FY14, growth of 13.6 %. PAT growth was higher than EBITDA growth due to higher other income and decline in interest cost. At the current market price of Rs. 279.25, the stock P/E ratio is at 28.20 x FY15E and 16.62 x FY16E respectively. Earnings per share (EPS) of the company for FY15E and FY16E are seen at Rs. 9.90 and Rs. 16.80 respectively. One can ‘BUY’ in this particular scrip with a target price of Rs. 305.00 for Short term and for the Medium to Long term investment it could be Rs. 400.

KEY FINANCIALSFY13FY14FY15EFY16E
SALES ( Crs)362.90483.50580.80741.00
NET PROFIT (₹ Cr)5.8013.4016.8028.60
EPS ()3.407.909.9016.80
PE (x)92.7040.1031.9018.80
P/BV (x)3.903.903.503.00
EV/EBITDA (x)20.1014.8012.009.30
ROE (%)4.009.6011.6017.40
ROCE (%)8.2011.9013.8017.50

I would buy LIBERTY SHOES LTD for Medium to Long term for target of Rs. 400.00 and for the Shorter term the target would be Rs. 305.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 256.90 on every purchase(Why Strict stop loss of 8 % ?) - Click Here


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