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Saturday, November 23, 2013


Scrip Code: 500696 HINDUNILVR
CMP:  Rs. 571.60; Buy at every dips.

Medium to Long term Target: Rs. 633; STOP LOSS – Rs. 525.90; Market Cap: Rs. 1,23,612.44 Cr; 52 Week High/Low: Rs. 725.00 / Rs. 432.15

Total Shares: 216,25,69,017 shares; Promoters : 145,44,12,858 shares –67.25 %; Total Public holding : 70,81,56,159 shares – 32.74 %; Book Value: Rs. 12.37; Face Value: Rs. 1.00; EPS: Rs. 16.61; Div: 1850.00 % ; P/E: 34.43 times; Ind. P/E: 38.24; EV/EBITDA: 25.69.
Total Debt: ZERO Cr; Enterprise Value: Rs. 1,23,287.81 Cr.

HINDUSTAN UNILEVER LTD: The Company was founded in 1931 and is based in Mumbai, India. The company was formerly known as Hindustan Lever Limited and changed its name to Hindustan Unilever Limited in 2007.  Unilever Ltd on November 17, 1956, offered 5,57,000 shares of Rs. 10 each to the public at par. In February 1980, in order to reduce the Non- Resident holding in the company to 51 %, Unilever Ltd offered for sale of 42,39,523 equity shares of Rs. 10 each at a premium of Rs. 9.50 per share, this was out of its shareholding in the company. Hindustan Unilever Limited, is a Fast Moving Consumer Goods (FMCG) company – it provides home and personal care products; foods and beverages in India and internationally. The company operates in 7 business segments. The company offers soaps and detergents, including soaps, detergent bars, detergent powders, detergent liquids, and scourers; and personal products - such as oral care, skin care, hair care, deodorant, talcum powder, and color cosmetic products, as well as Ayush services. It also provides beverages - including tea and coffee; foods, such as atta (flour), salt, and bread; culinary products comprising tomato and fruit based products, and soups; and ice creams, such as ice creams and frozen desserts. In addition, the company offers chemicals, such as glycerin and fine chemicals; agri commodities; and water purifiers, as well as exports marine and leather products. HUL has over 35 brands spanning 20 distinct categories. Its portfolio of brands includes the brand names like - 3 Roses, Annapurna, Brooke Bond, Taaza, Bru, Kissan, Knorr, Kwality Wall’s, Lipton, Modern, Red Label, and Taj Mahal brand names; personal products under the Aviance, Axe, Breeze, Clear, Clinic Plus, Closeup, Dove, Fair & Lovely, Hamam, LEVER Ayush Therapy, Lakme, Lifebuoy, Liril 2000, Lux, Pears, Pepsodent, Pond's, Rexona Soap, Sunsilk, and Vaseline brand names; and home care products under the Active Wheel, Cif, Comfort, Domex, Rin, Sunlight, Surf Excel, and Vim brand names and water purifiers under the brand name Pureit. As on 31st March 2013, Company had over 35 brands spanning 20 distinct categories. From April 01, 2013, Aquagel Chemicals Pvt Ltd become a subsidiary of Hindustan Unilever Ltd. On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer priced at Rs. 600 per share.  The company is locally compared with ITC, Godrej Consumer, Dabur India, Colgate, Marico, Emami, Godrej Ind, P&G, Gillette India, Bajaj Corp, Jyothy Labs, Amar Remedies, JHS Svendgaard, GKB Ophthalmics and Globally compared with Associated British Foods Plc of London, Colgate-Palmolive Co of New York, Kimberly-Clark Corp of USA, Procter & Gamble Co of USA, Nestle S.A of Europe, Pepsico Inc of USA, Coca- Cola Co of USA, Mondelez International Inc of USA (earlier known as Kraft Foods Inc which acquired Cadbury’s), Heineken Nv of Amsterdam, Starbucks Corp of USA, McDonald’s Corp of USA, Yum! Brands Inc of USA, Danone of Paris, Asahi Group Hld Ltd of Japan, and Kerry Group of Dublin.
Investment Rationale:
HINDUSTAN UNILEVER LTD is a play on consumption growth in India. The company has displayed its ability to effect price hikes and avoid impact of inflation in vegetable oils, which, combined with improved outlook for fabric wash and strong growth in processed foods and beverages, boosts the positive outlook on the stock. The recent moves by the company to dispose of its non-core assets including few properties give it a near term upside. The FMCG market in India is estimated to grow to US$ 100 billion by 2025, according to market research firm Nielsen. In the last decade the FMCG sector has grown at an average of 11 % a year; in the last five years, annual growth accelerated to 17 %. The FMCG Industry is characterized by a well-established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments. The rural India accounts for 70 % of India’s population, 56 % of National Income, 64 % of total expenditure and one third of the total savings. The Indian FMCG sector is the fourth largest sector in the Indian economy. Indian rural markets contribute around 45 % in HUL sales. In-order to tap the rural markets, HUL has conceived a project named Project Shakti. This project was started in 2001 with the aim of increasing the company's rural distribution reach as well as providing rural women with income-generating opportunities. This is a case where the social goals are helping achieve business goals. The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with the executives of Hindustan Unilever Ltd identifying the uncovered village areas. The representative of the company meets the panchayat and the village head and identify the woman who they believe will be suitable as a SA. After training she is asked to put up Rs. 20,000 as investment which is used to buy products for selling. The products are then sold door-to-door or through petty shops at home. On an average a Shakti Amma makes a 10 % margin on the products she sells. The main advantage of the Shakti program for HUL is having more feet on the ground. Shakti Ammas are able to reach far flung areas, which were economically unviable for the company to tap on its own, besides being a brand ambassador for the company. Moreover, the company has ready consumers in the form of SAs who become users of the products besides selling them. This gives thrust to the company’s volumes. On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer priced at Rs. 600 per share amounting to Rs. 19,174 Crs. The total shares tendered by HUL shareholders were 31,99,91,578 shares out of which 31,95,63,398 shares were accepted by Unilever Plc. The tender offer was announced on April 30, 2013 and began on June 21, 2013 and ended on July 4, 2013. Unilever wanted to raise its stake to 75 % from 52.48 %, but managed to hike its stake to 67.26 %. The stake rise by the parent company shows confidence in the India consumption growth story and parent believes that India is one of the biggest markets for Unilever and it would be beneficial to acquire a larger share in its Indian Arm. HUL also launched few products in the beauty portfolio with offerings like Lakme Youth Infinity range, Lakme Cleanup Clear Pores range, Ponds Pimple Clear facewash and Dove facewash with Nutrium Moisture. HUL continues to focus on innovations as it believes that it is these innovations that will bring strong growth when the market scenario improves.

Outlook and Valuation:
Business environment for HUL continues to be challenging with slowing growth being witnessed on both the value and volume fronts. The overall competitive intensity has stepped up in various categories while the up-trending has come to an pause. The discretionary category which was outpacing the other category over a longer term has come to a pause, but the company believes it to be a short-term phenomenon. HUL, in its board meet in January 2013, approved a royalty of 3.15 per cent of turnover effective from February 2013. Till January 2013, the company paid 1.4 per cent of the total turnover as royalty to its parent company, Unilever. The company will increase the royalty from 1.4 per cent to 3.15 per cent in a phased manner till March 2018. On performance side, HUL’s 2QFY14 revenues grew by 9.2 % YoY to Rs. 6,890 Cr owing to higher than expected volume growth of 5 %. HUL saw a recovery in Personal Product (PP) growth to 12 % YoY against 2 % of 1QFY14 which is the key positive. Higher sales in PP were at the cost of lower margins which were down by 1.41 % YoY. Waning price led growth and higher competitive intensity in Sales & Distribution has not only impacted sales growth of the segment but also its margins. HUL’s EBITDA margin remained flat at 15.7 % as EBITDA grew 11.1 % to Rs. 1,080 Cr. Lower than expected tax rate led to Adjusted PAT growth of 9.6 %. HUL has a robust product pipe, and has a strong and lucrative personal products portfolio, and expanding distribution network. But with waning price growth in Sales & Distribution, difficult demand environment in packaged foods and personal products and with increased competitive intensity; it is expected that company’s revenue growth will curtail. However, HUL is also a good play because it has a revenue growth from a medium to long term perspective, however due to increase in royalty, steep hike in tax rate and slowdown in discretionary segments remains an overhang on this stock. Depreciation in rupee impacts price of imported raw materials. A rise in crude oil prices can impact packaging costs and indirectly / directly impact palm oil and LAB prices. Increase in palm oil prices may lead to gross margin contraction. The price war in HUL’s popular segments with new entrants entering the fray could hit the company hard. HUL pay’s rich dividends and one can hold this stock from a three five year perspective and focus on new product launches and market share gains in existing categories. At the current market price of Rs. 571.60, the stock P/E ratio is at 34.43 x FY14E and 30.73 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 16.60 and Rs. 18.60 respectively. Hindustan Unilever Ltd could be a good buy for the target price of Rs. 633 for Medium to Long term investment

SALES ( Crs)22,987.7026,317.2028,726.2032,417.20
NET PROFIT (₹ Cr)2,686.503,385.1035,90.304,034.80
EPS ()12.4015.6016.6018.60
PE (x)47.6037.8035.6031.70
P/BV (x)36.5047.2033.2025.20
EV/EBITDA (x)35.3029.4026.4023.00
ROE (%)83.40103.10104.5087.60
ROCE (%)257.80489.10431.00227.40

I would buy HINDUSTAN UNILEVER LTD for Medium to Long term for target of Rs. 633. 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 8 % or ₹ 525.90 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold HINDUSTAN UNILEVER LTD in my investment portfolio.



Wednesday, November 13, 2013


Top post on, the community of Indian Bloggers

Scrip Code: 500182 HEROMOTOCO

CMP:  Rs. 2035.95; Accumulate at every dips.

Medium to Long term Target: Rs. 2140; STOP LOSS – Rs. 1873.25; Market Cap: Rs. 40,655.37 Cr; 52 Week High/Low: Rs. 2150.00 / Rs. 1435.00
Total Shares: 19,96,87,500 shares; Promoters : 7,97,12,482 shares –39.92 %; Total Public holding : 11,99,75,018 shares – 60.08 %; Book Value: Rs. 250.70; Face Value: Rs. 2.00; EPS: Rs. 104.77; Div: 3000 % ; P/E: 19.55 times; Ind. P/E: 19.24; EV/EBITDA: 10.96.
Total Debt: ZERO Cr; Enterprise Value: Rs. 40,520.42 Cr.

HERO MOTOCORP LIMITED:  HERO MOTOCORP Ltd was incorporated in 1984 and is based in New Delhi, India. The company changed its name to Hero MotoCorp after splitting from Hero Honda Motors Ltd in July 2011. Hero MotoCorp engages in the manufacturing and sales of motorcycles in India. It provides a range of two wheeler products, including motorcycles and scooters and spare parts. The company markets its product under various brands, including CD Dawn, CD Deluxe, Splendor Plus, Splendor NXC, Passion and Passion Pro, Passion Plus, Glamour, Super Splendor Pro, Achiever, Glamour FI, Hunk, CBZ X-treme, Karizma, Pleasure and Karizma ZMR. The company offers its product Achiever in 135 cubic centimeter segment. In the 150 cubic centimeters and above the company offers brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR. It also offers 100 cubic centimeter scooter Pleasure. It offers its products through a network of dealers, service and spare parts outlets and dealer-appointed outlets. The company’s bikes are manufactured across three manufacturing facilities. Two of these are based in Gurgoan and Dharuhera which are located in the state of Haryana in northern India. The third manufacturing plant is based at Haridwar, in the hill state of Uttrakhand. The company was a joint venture between India’s Hero Group and Japan’s Honda Motors Co whereby the promoter the Munjal’s bought the stake of Honda in July 2011. The company is compared to Bajaj Auto Ltd, TVS Motor Company Ltd, Atlas Cycles (Haryana), Shivam Auto Ltd, and Ashok Leyland Ltd locally and is globally compared with Harley-Davidson Inc of USA, Suzuki Motor Corp of Tokyo, Yamaha Motor Co ltd of Tokyo, Isuzu Motors Ltd of Japan, Aftab Automobiles Ltd of Middel East, Fuji Heavy Industries Ltd of Japan, Daihatsu Motor Co Ltd of Japan, Kawasaki Heavy Industries Ltd of Japan, Shimano Inc of Japan globally.

Investment Rationale:
Hero MotoCorp Ltd, India’s largest two-wheeler manufacturer, is charting out new growth strategy post Honda’s exit from the joint venture in January 2011. Post separation, Honda’s aggressive expansion plan has been exerting pressure on the market share of all two-wheeler players. However, Hero Motocorp is expected to maintain its leadership due to its largest distribution network with a deep presence in rural markets, and with a strong brand recall and also due to investment in building its own R&D and tie-ups with overseas technology partners. The company is targeting 1o lakhs two wheelers to be annually exported by FY17E. Over the years, Hero MotoCorp has built its distribution network of 750 dealers and 4,350 service centres. The network, has now grown more than 3 times in the past seven years, and now is fairly spread across rural and semi-urban areas. The rural sector constitutes around 46 % of Hero MotoCorp’s total sales volumes in FY13. Despite low industry volume off-take and stiff competition in the Indian two-wheeler market, Hero MotoCorp remains the market leader with 37.1 % share of industry sales volumes in H1FY14 followed by Bajaj Auto and Honda who are the closest competitors reporting 21.3 % and 20.8 % share, respectively, during the same period. HeroMotoCorp dominates the two-wheeler market with 51.4 % market share of the domestic motorcycles segment, led by its number one position in the executive sub-segment. Although intense competition is likely to impact Hero MotoCorp’s market share but still, it is expected that the company will hold leadership position around 52 % in market share in the domestic motorcycles market which can be possible for Hero MotoCorp as it has the largest distribution reach with 5,100 touch points, it has a strong brand recall especially in rural areas. The company has announced plans to invest Rs. 2,575 Cr in the coming years for setting up of new capacities which will increase its capacities by 20 lakhs units to 90 lakhs units, a part distribution centre at Rajasthan and has also recently set up its own R&D team and has tied up with three overseas technology companies viz Engines Engineering, AVL Austria and Erik Buell Racing, and management has also indicated to launch seven to eight new variants every year. Hero MotoCorp launched 15 models/variant in H2FY14 including a refresh version of its high-end bike Karizma. Karizma is the company’s first commercial production developed in collaboration with its technological partner EBR. The company has taken a price increase of Rs. 500 to Rs. 1500 on all models from 1 October 2013. The company is also developing a low-cost motorcycle for the Indian market; the motorcycle will be priced lower than the existing entry-level model HF Dawn which is priced at ₹37,000. It has indicated that once this model is successful in the Indian market, it would be considered for exports.

Outlook and Valuation:

Hero MotoCorp’s efforts for brand building post the Honda split and its investment phase and intensifying competition in two-wheelers will exert pressure on its profitability in the short term. In the global market, Honda has largely maintained more than 50 % market share and it is aggressively trying to replicate its success in India. Honda’s brand image along with technology edge may increase competitive pressure. It is expected that the overall motorcycle sales in India which is 80 % of two-wheeler industry sales to grow at 7 % - 9 % CAGR during FY13-18, led by rural demand. Hero MotoCorp’s domestic motorcycle sales volumes which are dominated by rural sales are expected to grow at 6 % CAGR during FY13-FY15. The company’s strong distribution network in rural markets and brand image are expected to drive growth. Also, it plans to expand in the export markets and its exports are expected to grow at a CAGR of 20 % during FY13-15. However, contribution of export to sales would still be low at 3 % in FY15. Hero MotoCorp is working on variant or models to meet specific requirement of export markets. Hero Motocorp expects to roll out its first own-technology based two-wheeler by FY14. Ability to successfully launch variant or new models will be a key to monitor. Post the split from Honda, Hero MotoCorp is building its own R&D facility in Rajasthan at an investment of Rs. 400 Cr and is expected to be operational by FY14 end. The company’s annual report mentions that the R&D centre will be spread across 250 acres, making it the largest two-wheeler R&D unit in India. It is expected that in FY15, with the royalty outflow to Honda going out from Q2 FY15 its volume growth expectations will become higher and its margins will continue to outperform. Its earnings will not be hampered with the impact of higher tax rate of around 27 % arising out from Haridwar benefit getting stopped and surcharge of 10 %. Factoring these pros and cons, HERO MOTOCORP looks as a good buy for the medium to long term with the target price to Rs. 2,240. At current price of Rs. 2035.95, the stock is trading at P/E of 19.06 x on FY14E & 14.61 x on FY15E. In my view Hero Motocorp could post EPS of Rs. 106.80 for FY14E & Rs. 139.30 for FY15E and one can ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view with a target price of Rs. 2240.00 for Medium to Long term investment. And for short term it would be Rs. 2137.00

SALES ( Crs)23,878.9023,978.8026,087.2029,178.00
NET PROFIT (₹ Cr)2,378.802,118.702,132.902,782.70
EPS ()119.10106.10106.80139.30
PE (x)17.5019.7019.5015.00
P/BV (x)9.708.307.105.80
EV/EBITDA (x)10.5011.7010.609.10
ROE (%)65.7045.6039.2042.70
ROCE (%)69.5046.1047.3053.00

I would buy HERO MOTOCORP LTD for Short term it would be Rs. 2137.00 and for the Medium to Long term it would be Rs. 2240. 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 8 % or ₹ 1873.25 on every purchase(Why Strict stop loss of 8 % ?) - Click Here



Thursday, November 7, 2013


Twitter : Twitter lists today. Issue price $ 26. 

At the current price of $46.00 and 705 million fully diluted shares, Twitter has a market cap of $32.4 billion. 

474,696,816 current shares 
42,708,824 options 
85,657,603 RSUs outstanding as of 9/30/13 

116,512 convertible preferred 

7,202,952 RSUs granted after 9/30/13 
13,178,040 stock issued for MoPub acquisition 
1,237,847 options issued for MoPub acquisition 
80,300,000 stock reserved for equity compensation plans

705,098,594 Total Shares 
$46.00 Current price 
$32,434,535,324 Valuation

Sunday, November 3, 2013


Here's Wishing You n your Family

We meditate on the Glory of the Creator ; 
   Who has created the Universe ; 
  Who is worthy of Worship ;
         Who is the embodiment of Knowledge and Light ; 
            Who is the remover of all Sin and Ignorance ;
  May He enlighten our Intellect.
Gayatri Mantra....

There's always something warm and bright, about this time of the year, when everything has a special glow, and hearts are full of Cheer, that's why this special greetings comes your way, to wish you all a life's best on Diwali and in the coming year too.....
Bhavikk Shah

I Wish u all a Very Happy Diwali and A Prosperous New Year and Thank you all for being there as a support system for the Blog for 5 long years..
Yes !!! its being Five long years serving its investor friends...and this would not at all been possible without your true and unconditional support ....

This blog, started as an hobby, was seen as a platform to share expreince.... but soon it became a passion, A Passion to create awarness among the people to be an investor and not an trader, an minuscule contribution through this Blog towards Investor Awareness ..!!!

Your blog witnessed the highs of 21,226 of November 2010 and the lows of 7,700 in November 2008, And Now, when we are witnessing 21,000 again, ur blog still have the same feeling that it had 5 years back, yes to help its investor friends.... With 226 posts and going.. I thank u all for ur unconditional support for the Blog which encourages us to keep on going...... once again WISH YOU ALL A VERY HAPPY NEW DIWALI AND A PROSPEROUS NEW YEAR !!!!


Best Regards,
Visit: Mobile Version of Blog 
 Twitter Handle -  @bhavikkrshah 





Scrip Code: 500830 COLPAL
CMP:  Rs. 1248.15; Buy at current levels.
Short term Target – Rs. 1350; 
STOP LOSS – Rs. 1148.29; Market Cap: Rs. 16,973.94 Cr; 52 Week High/Low: Rs. 1579.90 / Rs. 1190.00
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. 36.00; Face Value: Rs. 1.00; EPS: Rs. 38.90; Div: 2800.00 % ; P/E: 32.08 times; Ind. P/E: 39.12; EV/EBITDA: 24.38.
Total Debt: ZERO; Enterprise Value: Rs. 16,679.14 Cr.
EX - DIVIDEND on 6th NOV 2013 -  Rs. 9.00 (900%)

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 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. Other products in the personal care includes Palmolive shave cream and Palmolive Charmis cream. House hold care products include Axion Dish Washing paste. Colgate’s from the Dentist to the company offers Dentist product mix that includes Gingivitis treatment comprising of PerioGard and Total Plax, Sensitivity treatment products comprising of Gel Kam and Sensitive, Tooth whitening products, Fluoride therapy consists of Phos-Flur anti-cavity fluoride rinse and lastly Mouth ulcer treatment which consists of Oragard-B. 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 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:
India’s oral care market is 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. This has led to an increase in the number of oral care companies entering the space, thereby stiffening the competition. P&G has made a similar move by launching its first toothpaste in the country under the Oral-B brand, which commands close to 30 % share in the toothbrush market. Although P&G’s Oral-B has a strong brand recall in India, Colgate-Palmolive has also positioned itself well to defend its market share here. In India only 42 % of the people living in Indian villages and small towns use toothpaste, the proportion is expected to increase with rising rural income and greater awareness about oral hygiene through advertisements, dental camps and free dental checkups. 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. 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 toothpastes to dental creams due to which this category is growing at 30 %–40 % annually. Colgate has launched its innovative products such as Colgate Total Pro Gum Health and Colgate Sensitive which will help Colgate to compete with P&G’s Oral-B Pro-Health. Colgate launched several products and a new production facility in India. To support its products in the wake of rising competition, the company also increased its advertising spending which increased by 31 % during the first half of 2013. This has resulted in market share gains in toothpastes, which has grown from 52 % in 2012 to 56 % presently. Company’s annual Report 2013 emphasizes the importance of innovations, market development and distribution expansion to drive growth in oral care business. Colgate is driving market development through consumer awareness program like ‘Brush at Night’, ‘Oral Health Month’ and ‘Bright Smiles, Bright Future’. Innovations are creating new segments like Gum Care, Sensitivity & Visible White. Colgate has launched Colgate Total Pro Gum Health and Colgate Visible White toothpaste in FY13. It has also launched Colgate MaxFresh and Colgate 360 (battery operated) in toothbrush category. Strong efforts on distribution are underway; wherein store coverage increased 40% and rural coverage increased by 25% in FY13. Given that P&G’s toothpaste launch was in the pipeline for some time, competitors have been gearing up for this, and this gets evidenced by a spate of promotions and price-offs, it is expected that Colgate’s ad-spends will too increase. Colgates has a very strong leadership in toothpaste category, it has strengthened its leadership position in toothpaste category from 52.9 % in FY12 to 54.6% in FY13, while market share in toothbrush strengthened to 40.5 %. Hindustan Unilever and Dabur India are at risk of market share loss wherein, the toothpastes contributes 6 % - 7 % of Hindustan Unilever’s and 9 % - 10 % of Dabur India’s revenues. Colgate management is committed for continued investments in India and their efforts are underway for toothpaste facility in Sanand, Gujarat and toothbrush facility in Sricity, Andhra Pradesh. The company has already expended capex of Rs. 1oo Cr and capital advance of Rs. 54.80 Cr and expects commercial production in FY14.

Outlook and Valuation:
Colgate has been present in India for more than 76 years. With products across all oral care categories and price points, it is one of the most popular and preferred oral hygiene brands in the country. Compared to P&G, Colgate offers a much larger assortment of oral care products in a wide price range. This allows consumers to trade up and down gradually depending on macroeconomic conditions without impacting Colgate’s sales volume. Colgate-Palmolive was faced with a similar situation in Brazil where it commands over 70 % market share. When P&G entered the country’s oral care market in 2009, a majority of its market share gains came from smaller competitors and overall category growth for Colgate continued due to maintained strong brand equity among consumers. P&G’s market share gains in India will also come from smaller competitors such as HUL and Dabur given that Brazil and India are quite similar in terms of economic growth and where Colgate-Palmolive has a dominating presence. Recently, Colgate transferred the GSSO division to Colgate Global Business Services Pvt Ltd (CGBSPL) which will enable Colgate Palmolive India to focus on its core business. Colgate divested GSSO by way of slump sale to CGBSPL for a consideration of Rs. 59.89 Cr. With this transfer, expenses and income resulting from this entity would no more reflect in Colgate’s financials w.e.f April 2013. On performance side the volume growth in toothpaste category has moderated from 13 % in recent past to 10 % in FY13. Though, no qualitative input is available in the annual report, but with market checks seems to indicate slower growth in value tiers. Media spends has risen from Rs. 260 Cr in FY12 to Rs. 350 Cr in FY13, A&P spend increased from 15.7 % in FY12 to 15.9% in FY13. This probably hints at preparedness of Colgate for upcoming entry of P&G in India. The management exuberated confidence that the Oral Care category would continue to grow at a healthy pace given the size of the opportunity, but also cited that competition may intensify in near future. With the underlying volume growth of 10 % - 11 % is in sync with management commentary. However, launch of P&G in India, should drive promotions in this category. Colgate Palmolive India has increased media spends in FY13; higher promotion spends in FY14E should be underway. There is overhang on earnings in the short-run. The company has a Cash flow generation of Rs. 460 Cr in FY13 as against Rs. 300 Cr in FY12; also the company has a strong dividend payout at 77 % vs average of 72 % in last 3 years. Higher dividend payout exuberates confidence on future cash generation. At the current market price of Rs. 1239.95, the stock is trading at a PE of 29.86 x FY13E and 25.78 x FY14E respectively. The company can post Earning per share (EPS) of Rs. 41.80 for FY13E and Rs. 48.40 for FY14E. 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 target price of Rs. 1350.00 for shorter term and for Rs. 1430.00 for Medium to Long term investment.

SALES (Rs. Crs)2,623.803,084.103,514.704,083.60
NET PROFIT (Rs. Crs) 446.50496.80567.90658.10
EPS (Rs.)32.8036.5041.8048.40
PE (x)43.2038.8034.0029.30
P/BV (x)44.3039.4034.9030.80
EV/EBITDA (x)36.9032.4025.2021.00
ROE (%)109.00107.40109.00111.7
ROCE (%)149.20148.90154.50160.20

I would buy COLGATE PALMOLIVE (INDIA) LTD with a price target of Rs. 1,430 for the 6 month target. 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 8 % or Rs. 1148.29 on your every purchase.


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