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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HINDUSTAN UNILEVER LTD : BEST IN FMCG !!!

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 31^st 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. 

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	22,987.70	26,317.20	28,726.20	32,417.20
NET PROFIT (₹ Cr)	2,686.50	3,385.10	35,90.30	4,034.80
EPS (₹)	12.40	15.60	16.60	18.60
PE (x)	47.60	37.80	35.60	31.70
P/BV (x)	36.50	47.20	33.20	25.20
EV/EBITDA (x)	35.30	29.40	26.40	23.00
ROE (%)	83.40	103.10	104.50	87.60
ROCE (%)	257.80	489.10	431.00	227.40

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.

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COLGATE PALMOLIVE (INDIA) LTD : DIWALI 2013 MUHURAT PICK !!!

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.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (Rs. Crs)	2,623.80	3,084.10	3,514.70	4,083.60
NET PROFIT (Rs. Crs)	446.50	496.80	567.90	658.10
EPS (Rs.)	32.80	36.50	41.80	48.40
PE (x)	43.20	38.80	34.00	29.30
P/BV (x)	44.30	39.40	34.90	30.80
EV/EBITDA (x)	36.90	32.40	25.20	21.00
ROE (%)	109.00	107.40	109.00	111.7
ROCE (%)	149.20	148.90	154.50	160.20

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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RETURN ON CAPITAL

HUL : CATCH IT IF YOU CAN !!!

Scrip Code: 500696 / HINDUNILVR

CMP:  Rs. 569.45; Buy at Rs. 565-570 levels.

Target for 6 month - 1 year: Rs. 600.00; STOP LOSS – Rs. 480.00; Market Cap: Rs. 1,23,110.42 Cr; 52 Week High/Low: Rs. 580.45 / Rs. 325.20. 

Total Shares: 216,19,18,098 shares; Promoters: 113,48,49,460 shares – 52.49 %; Total Public holding: 102,70,68,638 shares – 47.48 %; Book Value: Rs. 15.88; Face Value: Rs. 1.00; EPS: Rs. 15.62; Div: 650 %; P/E: 35.85 times; Ind. P/E: 44.19; EV/EBITDA: 39.74 

Total Debt: Rs. ZERO Cr; Enterprise Value: Rs. 1,24,980.48 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.  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. 

Investment Rationale:

HUL’s management has successfully turned around the business in the past two years through focusing on volume growth, cost rationalisation and faster innovation. From a situation where the company was growing below market average and losing market share in 2009, HUL has consistently delivered near-double-digit volume growth for nine quarters. This has come despite the company raising blended prices by 10 % YoY to pass on raw material cost inflation. HUL’s Management has delivered a strong and sustainable turnaround. HUL’s strong investments in innovation starting from FY10 have imparted volume growth momentum to the business. In a departure from the company’s strategy over the 2000's on rationalising brand portfolio and aligning to the parent’s global objectives, HUL has become more focused on the local market, improved agility (means the capability of rapidly & efficiently adapting to changes) in responding to competition and is churning out a significantly larger number of innovations. Over 60 % of HUL’s large portfolio was touched by innovation in FY12, with a clear focus on premiumisation in established categories and growth in new categories such as deodorants and face washes. HUL’s see a moderate scope for margin expansion as the key raw materials for HUL such as LAB, palm oil and packaging have not seeing an absolute decline in prices besides having seen a moderation in YoY inflation. Given the volume growth momentum, HUL continues to gradually increase prices which should help inch up gross margins in FY13. Also, the strong revenue growth is imparting operating leverage to the business. However, post 1H FY 13, HUL will not have the benefit of a weak base; this could limit margin expansion. In the period of 2000-08, HUL had actually curtailed its portfolio of brands in categories such as soaps, detergents and tea, de-focusing on ‘local brands’ while increasing investments into global brand platforms. However, given the local nature of competition in these three categories, this led to market share losses in many states where HUL de-focussed on regionally strong brands. This is changed now, with management focusing on every part of their portfolio. Thus, local brands such as Sunlight, Hamam, Breeze, Ruby and Lakme have also seen innovation activity in the past two years. In FY12, the company took a strong jump in its rural distribution (which was already the best in the industry) by expanding its coverage by three times. With this, HUL’s total direct retail coverage is over 20 Lakh outlets, compared with 5 -11 lakh outlets of its key competitors. Another positive for HUL is that the high-margin in personal products business has seen very stable growth in the range of 15 %- 20 % over the past nine quarters, driven by strong double-digit volume growth.

Outlook and Valuation:

As an organisation, HUL has become more agile in responding to competitive moves and volatility in input costs, which is needed to remain competitive in the market. HUL’s Soaps & Detergents revenue growth over the past few quarters has been well above the average growth. While drivers like premiumisation should continue to drive a 10 %-15 % sustainable growth in these categories, most of the listed companies are reporting growth well in excess of these levels. One of the reasons is that unbranded products or local brands in these categories are losing share as they become uncompetitive in a high input cost environment. Also, the high cost of capital and the volatility in currency could be impacting small businesses much more than larger companies.

However, the share gain of the branded players should stem at some stage, leading to moderation in revenue growth. Soaps and detergents continue to be an important part of HUL’s profits. For FY12, the segment constituted 47 % of revenue and 36 % of operating profit. Thus, any moderation in growth here could be a key risk for HUL. These categories, being the two largest FMCG categories, are also highly susceptible to down-trading by consumers as they form large parts of the consumer wallet within FMCG. Here is the 13 year short details on HUL's Financial - 

YEAR	EPS (in Rs.)	P/E (X)	BV (in Rs.)	Div/Sh (in Rs.)
1999	4.86	46.29	9.55	2.90
2000	5.95	34.68	11.30	3.50
2001	7.46	29.97	13.82	5.00
2002	8.04	22.60	16.62	5.16
2003	8.05	25.42	09.71	5.50
2004	5.44	26.37	09.50	5.00
2005	6.40	30.82	10.47	5.00
2006	8.41	25.74	12.34	6.00

5 YR	EPS (in Rs.)	P/E (X)	BV (in Rs.)	Div/Sh (in Rs.)
2007	8.73	24.50	06.61	9.00
2008	11.46	20.72	09.45	7.50
2010	10.10	23.63	11.84	6.50
2011	10.58	26.89	12.19	6.50
2012	12.46	32.89	16.25	7.50

HUL has traded at an average one-year forward P/E of 24.3x over the past 10 years, which includes the period of eight years between CY03 and FY11 when the company delivered less than 3 % earnings CAGR, significantly below its listed peers. Even during the peak of the price war with P&G from 2004 to 2006, the stock traded at an average one-year forward P/E of 24.2x. Hence, HUL should trade at a premium to its valuation during these periods given the high visibility of mid-teens earnings CAGR over the next three years. The turnaround affected by management over the past two years was based on investments made in innovation and distribution, which could reap benefits over the next two-three years. Hence, the valuation of HUL comes at 30x one-year forward earnings, which is a 20 % premium to the stock’s 10-year trading average. At the CMP of Rs. 569.45, the stock is trading at 5.62 x FY2012E and 5.22 x FY2013E EV/EBITDA, the stock is trading at a P/E of 37.81 x FY13E and 32.22 x FY14E respectively. Earnings per share (EPS) of company for FY13E and FY14E are seen at Rs. 15.06 and Rs. 17.67 respectively. One can buy HUL with a target price of Rs. 600.00 for a minimum of 6 month to 1 year.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	21,735.60	25,722.81	29,965.11	34,912.91
NET PROFIT (Rs. Crs)	2,691.41	3,255.35	3,820.24	4,517.14
EPS (Rs.)	12.45	15.06	17.67	20.90
PE (x)	41.20	34.10	29.10	24.60
P/BV (x)	31.60	27.10	23.20	19.80
EV/EBITDA (x)	33.20	26.90	22.60	19.00
ROE (%)	87.20	85.50	85.90	86.80
ROCE (%)	87.48	92.91	94.43	95.67

I would buy HINDUSTAN UNILEVER LTD with a price target of Rs. 610 for minimum of 6 months to 1 year. 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  Rs. 480.00 on every purchase as it is the for the 1 year target.

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

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