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 Regimen. Over the years, Colgate has built an extensive oral care portfolio through constant innovation, thereby offering products across the value pyramid and within each sub-category 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 Jan‐Sep 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 FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	3,163.90	3,578.20	4,089.50	4,772.90
NET PROFIT (₹ Cr)	496.80	484.30	582.10	692.80
EPS (₹)	36.50	35.60	42.80	50.90
PE (x)	47.00	48.20	40.10	33.70
P/BV (x)	47.70	38.90	35.60	32.30
EV/EBITDA (x)	34.80	34.80	27.50	22.00
ROE (%)	101.46	90.00	74.70	68.85
ROCE (%)	153.28	127.54	118.44	109.85

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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