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SYNOPSIS

Colgate-Palmolive (India) Limited

engages in the manufacture and

marketing of fast moving consumer

goods in India and internationally.

The company is maintaining its

leadership position at 52.5% market

share (Dec 10-Nov 11).

Net profit has Phenomenal surged by

75% to Rs.1155.80 mn and strong

growth in revenue of 19.62% for the

quarter ended Dec 2011.

Company has paid advance to

Gujarat Industrial Development

Corporation towards land for

manufacturing facility at Sanand.

Net Sales and Operating profit of the

company are expected to grow at a

CAGR of 15% and 10% over 2010 to

2013E respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 22968.60 5574.90 4025.80 29.60 33.34

FY 12E 27189.59 6099.90 4329.40 31.83 31.00

FY 13E 30724.24 6905.05 4928.84 36.24 27.23

Stock Data:

Sector: FMCG

Face Value Rs. 1.00

52 wk. High/Low (Rs.) 1084.30/783.20

Volume (2 wk. Avg.) 47673

BSE Code 500830

Market Cap (Rs.In mn) 134232.00

Share Holding Pattern

1 Year Comparative Graph

Colgate Palmolive BSE SENSEX

C.M.P: Rs. 987.00 Target Price: Rs. 1115.00 Date: Feb 01st, 2012 BUY

Colgate Palmolive (India) Ltd Result Update: Q3 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Colgate Palmolive 987.00 134232.00 31.60 31.23 34.95 2200.00

ITC 204.75 1595324.20 7.48 27.37 10.04 445.00

Dabur 95.30 168880.60 2.74 34.78 15.30 115.00

HUL 396.00 855773.70 11.67 33.93 32.49 650.00

Investment Highlights

Q3 FY12 Results Update

Colgate Palmolive India has posted a net profit of Rs 1,155.80 million for

the quarter ended December 31, 2011 as compared to Rs 662.70 million for

the quarter ended December 31, 2010, representing an increase of 74.41%. Net

sales has increased from Rs 5766.40 million for the quarter ended December 31,

2010 to Rs 6897.80 million for the quarter ended December 31, 2011, representing

an increase of 19.62%. Total Income surged to Rs.6995.20 million for the quarter

ended Dec 2011. The EPS of the company is stood at Rs.8.50 for the quarter ended

Dec 2011.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec -10 %change

Net sales 6897.80 5766.40 19.62

PAT 1155.80 662.70 74.41

Basic EPS 8.50 4.87 74.41

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Break up of Expenditure

Declaration of dividend

Colgate Palmolive (India) Ltd has declared a second interim dividend of Rs. 9/-

(Rupees nine only) per equity share of Re. 1/- (face value) for the financial year

ending March 31, 2012.

Manufacturing facility at Sanand unit

Company has paid an advance of Rs 4,263 Lacs to Gujarat Industrial Development

Corporation (GIDC) towards net allotment price for the lease of plot of land for the

proposed Toothpaste manufacturing facility at Sanand, Gujarat.

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Company Profile

Colgate-Palmolive is Rs1,300 crore company started in year 1937. In domestic market

it enjoys 50% of market share. It spread across 4.5 million retails outlets out of which

1.5 million are direct outlets.

The Company is having four wholly owned subsidiaries namely Colgate-Palmolive

(Nepal), Multimint Leasing & Finance and Jigs Investments and Passion Trading &

Investment Company.

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. The company is regularly coming up with new products and has been a

consintent financial performer.

Products

Oral care-Under this segment the company offers product like toothpastes,

toothbrush, tooth powder & tooth whitening products.

Personal care -In this segment it offer products skin care, hair care, body wash, &

shaving creams

Household care-Under this segment it has launched brand AXIOM-a dish washing

paste.

It has also introduced new products namely Colgate dental floss, ORAGARD-B a

mouth ulcer cream etc.

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 20352.00 22968.60 27189.59 30724.24

Other Income 254.00 305.00 404.43 452.96

Total Income 20606.00 23273.60 27594.02 31177.20

Expenditure -15367.30 -17698.70 -21494.12 -24272.15

Operating Profit 5238.70 5574.90 6099.90 6905.05

Interest -15.00 -32.90 -24.15 -25.35

Gross profit 5223.70 5542.00 6075.76 6879.70

Deprecation -375.70 -342.50 -397.06 -436.77

Profit Before Tax 4848.00 5199.50 5678.70 6442.93

Tax -615.40 -1173.70 -1349.30 -1514.09

Profit After Tax 4232.60 4025.80 4329.40 4928.84

Equity capital 136.00 136.00 136.00 136.00

Reserves 3125.10 3704.50 8033.90 12962.74

Face value 1.00 1.00 1.00 1.00

EPS 31.12 29.60 31.83 36.24

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 6293.70 6755.40 6897.80 7242.69

Other income 119.80 94.70 97.40 92.53

Total Income 6413.50 6850.10 6995.20 7335.22

Expenditure -4938.10 -5447.50 -5404.90 -5703.62

Operating profit 1475.40 1402.60 1590.30 1631.60

Interest -6.10 -7.50 -5.70 -4.85

Gross profit 1469.30 1395.10 1584.60 1626.76

Depreciation -88.00 -105.70 -99.20 -104.16

Profit Before Tax 1381.30 1289.40 1485.40 1522.60

Tax -376.90 -292.60 -329.60 -350.20

Profit After Tax 1004.40 996.80 1155.80 1172.40

Equity capital 136 136 136 136

Face value 1.00 1.00 1.00 1.00

EPS 7.39 7.33 8.50 8.62

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(In Million) 136.00 136.00 136.00 136.00

EBITDA Margin (%) 25.74% 24.27% 22.43% 22.47%

PBT Margin (%) 23.82% 22.64% 20.89% 20.97%

PAT Margin (%) 20.80% 17.53% 15.92% 16.04%

P/E Ratio (x) 31.71 33.34 31.00 27.23

ROE (%) 129.79% 104.82% 52.99% 37.63%

ROCE (%) 169.77% 154.06% 79.52% 56.05%

Debt Equity Ratio 0.01 0.00 0.00 0.00

EV/EBITDA (x) 25.62 24.08 22.01 19.44

Book Value (Rs.) 23.98 28.24 60.07 96.31

P/BV 41.16 34.95 16.43 10.25

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Charts:

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Outlook and Conclusion

At the current market price of Rs.987.00, the stock is trading at 31.00 x FY12E

and 27.23 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.31.83 and Rs.36.24 respectively.

Net Sales and Operating profit of the company are expected to grow at a CAGR

of 15% and 10% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 22.01 x for FY12E and 19.44 x

for FY13E.

Price to Book Value of the stock is expected to be at 16.43 x and 10.25 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.1115.00 for Long term investment.

Industry Overview

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer

packaged goods. Items in this category include all consumables (other than

groceries/pulses) people buy at regular intervals. The most common in the list are

toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,

packaged foodstuff, household accessories and extends to certain electronic goods.

These items are meant for daily of frequent consumption and have a high return.

A major portion of the monthly budget of each household is reserved for FMCG

products. The volume of money circulated in the economy against FMCG products is

very high, as the number of products the consumer use is very high. Competition in

the FMCG sector is very high resulting in high pressure on margins

FMCG companies maintain intense distribution network. Companies spend a large

portion of their budget on maintaining distribution networks. New entrants who wish

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to bring their products in the national level need to invest huge sums of money on

promoting brands. Manufacturing can be outsourced. A recent phenomenon in the

sector was entry of multinationals and cheaper imports. Also the market is more

pressurized with presence of local players in rural areas and state brands

Scope of the Sector

The Indian FMCG sector with a market size of Rs.1,35,000 crore is the fourth largest

sector in the economy. A well-established distribution network, intense competition

between the organized and unorganized segments characterizes the sector.

The Rs.1,35,000 crore FMCG market in India is growing at a fast pace despite of the

economic downtrend. The increasing disposable income and improved standard of

living in most tier II and tire III cities are spearheading the FMCG growth across the

nation. The changing profile and mind set of the consumers has shifted the thought to

“Value for Money” from “Money for Value”.

According to a FICCI-Technopak report, India's FMCG sector is poised to reach US$

43 billion by 2013 and US$ 74 billion by 2018. The report states that implementation

of the proposed goods and services tax (GST) and the opening of foreign direct

investment (FDI) are expected to fuel growth further and raise the industry's size to

US$ 47 billion by 2013 and US$ 95 billion by 2018.

According to a study by research firm The Nielson Company, the fast moving

consumer goods market (FMCG) in rural India is tipped to touch US$100 billion by

2025 on the back of "unrelenting" demand driven by rising income levels. According to

the study, rural India accounts for more than half of sales in some of the largest

FMCG categories.

At present, rural consumers spend about US$ 9 billion per annum on FMCG items

and product categories such as instant noodles, deodorant and fabric, with the pace of

consumption growing much faster than urban areas, as per the findings.

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“The industry will witness a spate of acquisitions & mergers in the 2010. There will be

a renewed focus on rural consumers too,” by an analyst based in Mumbai.

The fast moving consumer goods (FMCG) sector is expected to grow 13 per cent during

FY 2010-11 on the back of strong economic growth, a good monsoon and subsequent

rise in rural income, according to an industry body.

Over the years companies like HUL, ITC and Dabur have improved performance with

innovation and strong distribution channels. Their key categories have strengthened

their presence and outperformed peers in the FMCG sector. On the contrary, Colgate

Palmolive and Britannia Industries are strong in single product category i.e. tooth

pastes and Biscuits. In addition companies have been successful in reviving their

presence in the semi-urban and rural markets.

Major investments

Some of the major investments in the industry are:

• Chennai-based FMCG company CavinKare is planning to invest around US$

109.50 million over the next two years in various expansion plans, including a

greenfield facility for namkeen at Thane, cool drinks in the North and others.

• Nestle, the fast moving consumer goods major, plans to invest US$ 50.49

million to set up its first research and development (R&D) centre in India at

Manesar in adjoining Gurgaon district. The facility will be made operational by

July 2012.

• Packaged consumer goods company GlaxoSmithKline Consumer Healthcare

(GSKCH) plans to invest over US$ 64.87 million on repositioning milk food

drink Horlicks as the company’s umbrella brand.

• FieldFresh Foods , joint venture of the Bharti Enterprises and Del Monte Pacific

Ltd, has inaugurated their Research and Development and manufacturing

facility in Hosur, Tamil Nadu at an investment of US$ 25.93 million.

• Agri solutions provider Buhler India plans to invest US$ 22.55 million in an

integrated manufacturing unit and other expansion projects in the next four

years, in line with its plans to achieve US$ 225.49 million turnover by 2014.

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• Soft drinks and snacks major Pepsico is planning to invest US$ 500 million in

India in the next two years.

• Atlanta-based Coca Cola Company plans to invest up to US$ 120.75 million to

set up a new bottling plant in Karnataka, India

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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Firstcall India Equity Research: Email – info@firstcallindia.com

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