COLGATE-PALMOLIVE (INDIA) LTD Result Update (PARENT BASIS): Q1 FY15

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1 COLGATE-PALMOLIVE (INDIA) LTD Result Update (PARENT BASIS): Q1 FY15 ISIN: INE259A01022 OCTOBER 1 st, 2014 STOCK DETAILS Sector FMCG BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg ) Market Cap ( Rs in mn ) Annual Estimated Results (A*: Actual / E*: Estimated) Years FY14A FY15E FY16E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph COLGATE-PALMOLIVE (INDIA) LTD S&P BSE SENSEX Recommendation BUY CMP Target Price SYNOPSIS Colgate Palmolive (India) Limited is India s leading provider of scientifically proven oral care products with multiple benefits at various price points. During the quarter, net profit stood at Rs mn against Rs mn in the corresponding quarter ending of previous year. Revenue for the quarter rose by 11.31% to Rs mn from Rs mn, when compared with the prior year period. EPS of the company stood at Rs.9.92 a share during the quarter. During Q1 FY15, EBITDA is Rs mn as against Rs mn in the corresponding period of the previous year, grew by 9.71%. The Company posted a strong volume growth of 5% for the quarter and continued to enhance its leadership position in Toothpaste category by registering a volume market share of 57.0% for the period Jan 14-Jun 14, an increase of 110 basis points over the same period of the previous year. The Company s Toothbrush category registered a volume market share of 42.6% for Jan 14-Jun 14, an increase of 140 basis points over the same period of the previous year. Colgate Palmolive (India) Ltd has declared a first interim dividend of Rs. 8/- per equity share of Re. 1/- (face value) for FY Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 7% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) Colgate-Palmolive (India) Ltd P&G Hygiene and Health Care Ltd Dabur India Ltd HUL Ltd

2 Analysis & Recommendation - BUY Colgate-Palmolive (India) Limited reported net sales of Rs mn for the first quarter of the financial year , a 11.31% increase over the same period of the previous year and Net Profit After Tax of Rs mn with Earnings Per Share of Rs. 9.92, an increase of 4% over the same quarter of the previous year excluding exceptional item in the previous year relating to the slump sale of Global Shared Services Organisation to Colgate Global Business Services Private Limited, a 100% subsidiary of Colgate-Palmolive Company, USA. The Company posted a strong volume growth of 5% for the quarter and continued to enhance its leadership position in Toothpaste category by registering a volume market share of 57.0% for the period Jan 14-Jun 14, an increase of 110 basis points over the same period of the previous year. The flagship brands Colgate Dental Cream, Active Salt, Max Fresh and Colgate Total along with the recently launched Visible White have contributed to this growth. The Company further strengthened its leadership position in the Toothbrush category by registering a volume market share of 42.6% for Jan 14-Jun 14, an increase of 140 basis points over the same period of the previous year. Over FY E, we expect the company to post a CAGR of 12% and 7% in its top-line and bottom-line respectively. Hence, we recommend BUY for COLGATE-PALMOLIVE (INDIA) LTD with a target price of Rs for medium to long term investment. FINANCIAL HIGHLIGHTS (PARENT BASIS) Results updates- Q1 FY15, Colgate-Palmolive (India) Limited engages in the manufacture and marketing of fast moving consumer goods in India and internationally, reported its financial results for the quarter ended 30 th June, Months Jun-14 Jun-13 % Change Net Sales PAT (27.16) EPS (27.16) EBITDA The company net profit declines to Rs million against Rs million in the corresponding quarter ending of previous year, a decrease of 27.16%. Revenue for the quarter rose by 11.31% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.9.92 a share during the quarter, registering 27.16% decreased over previous year period. Profit before interest, depreciation and tax is Rs million as against Rs million in the corresponding period of the previous year.

3 Expenditure : Break up of Expenditure Cost of Material Consumed Purchase of Stock in Trade Employee Benefit Expenses Depreciation & Amortization Expenses Advertising and Sales Promotion (Rs. in million) Q1 FY15 Q1 FY14 % CHNG % % % % % Other Expenditure % Latest Updates Colgate Palmolive (India) Ltd has declared a first interim dividend of Rs. 8/- per equity share of Re. 1/- (face value) for FY Company Profile Colgate-Palmolive (India) Limited is India s leading provider of scientifically proven oral care products with multiple benefits at various price points. The range includes toothpastes, toothpowder, toothbrushes and mouthwashes under the Colgate brand, as well as a specialized range of dental therapies under the banner of Colgate Oral Pharmaceuticals. These have become an essential part of daily oral hygiene and therapeutic oral care in India. The Company also provides a range of personal care products under the Palmolive brand name. Colgate has been ranked as India s #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 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 consistent financial performer.

4 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.

5 Financial Highlight (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance sheet as at March 31 st, E SOURCES OF FUNDS Shareholder's Funds FY13A FY14A FY15E FY16E Share Capital Reserves and Surplus Sub Total - Net worth Non Current Liabilities Other Long term Liabilities Long Term Provisions Sub Total - Non Current Liabilities Current Liabilities Trade Payables Other Current Liabilities Short Term Provisions Sub Total - Current Liabilities Total Liabilities (1+2+3) APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets Capital Work in Progress a) Sub Total - Fixed Assets b) Non-current investments c) Deferred Tax Asset d) Long Term loans and advances e) Other non-current assets Sub Total - Non Current Assets Current Assets Current Investments Inventories Trade receivables Cash and Bank Balances Short-terms loans & advances Other current assets Sub Total - Current Assets Total Assets (1+2)

6 Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 st Dec, 2013 to 30 th Sep, 2014E Value(Rs.in.mn) 31-Dec Mar Jun Sep-14E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Net Profit Equity capital Face value EPS

7 Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) EBITDA Margin (%) 22.34% 19.96% 20.34% 20.49% PBT Margin (%) 20.96% 20.34% 18.89% 19.00% PAT Margin (%) 15.70% 15.09% 13.74% 13.77% P/E Ratio (x) ROE (%) % 90.00% 74.70% 68.85% ROCE (%) % % % % EV/EBITDA (x) Book Value (Rs.) P/BV Charts

8 Outlook and Conclusion At the current market price of Rs , the stock P/E ratio is at x FY15E and x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 7% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at x for FY15E and x for FY16E. Price to Book Value of the stock is expected to be at x and x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview The Indian Fast Moving Consumer Goods (FMCG) sector is the fourth largest in the Indian economy and has a market size of $13.1 billion. This industry primarily includes the production, distribution and marketing of consumer packaged goods, that is those categories of products which are consumed at regular intervals. The FMCG market is set to treble US$ 33.4 billion in 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. The sector accounted for 1.9% of the nation s total FDI inflows in April September Cumulative FDI inflows into India from April 2000 to April 2013 in the food processing sector stood at Rs. 9,000.3 crore, accounting for 0.96% of overall FDI inflows while the soaps, cosmetics and toiletries, accounting for 0.32% of overall FDI at Rs. 3,115.5 crore. Food products and personal care together make up two-third of the sector s revenues.

9 Rural India accounts for more than 700 mn consumers or 70% of the Indian population and accounts for 50% of the total FMCG market. With changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $80 bn by 2026 in towns with population of up to 10 lakh. India's labor cost is amongst the lowest in the world, after China & Indonesia, giving it a competitive advantage over other countries. Household care The fabric wash market size is estimated to be ~USD 1 billion, household cleaners to be USD 239 million, with the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been growing at an annual growth rate of 10 to 11% during the past five years Personal Care (HPC) The personal care products (PCP) market in India is estimated to be worth ~USD 4 bn p.a. Personal hygiene products (including bath and shower products, deodorants etc.), hair care, skin care, colour cosmetics and fragrances are the key segments of the personal care market. Food & Beverages Food processing industry is one of the largest industries in India, ranking fifth in terms of production, growth, consumption, and export. The total value of Indian food processing industry is expected to touch USD 194 billion by 2015 from a value of USD 121 billion in 2012, according to Indian Council of Agricultural Research (ICAR). Government Policies and Regulatory Framework Goods and Service Tax (GST): GST, which will replace the multiple indirect taxes levied on FMCG sector with a uniform, simplified and single-pint taxation system, is likely to be implemented soon (the benefits are likely to come in by the end of FY 14). The rate of GST on services is likely to be 16% and on goods is proposed to be 20%. A swift move to the proposed GST may reduce prices, bolstering consumption for FMCG products. Food Security Bill: The food security Bill has been passed recently by the Union Cabinet. As per the Bill, 5Kg of food grains per person per month will be provided at subsidized prices from State Governments under the targeted public distribution system. FDI in retail: The decision to allow 51% FDI in multi brand retail and 100% FDI in single brand retail augers well for the outlook for the FMCG sector. FMCG sector accounted for 1.9% of the nation s total FDI inflows in April September Cumulative FDI inflows into India from April 2000 to April 2013 in the food processing sector stood at Rs. 9, crore, accounting for 0.96% of overall FDI inflows while that in the soaps,

10 cosmetics and toiletries was Rs. 3, crore in, accounting for 0.32%. The food processing sector attracted FDI inflows of Rs. 6,198 crore during April 2009 to December Relaxation of license rules: Industrial licenses are not required for almost all food and agro-processing industries, barring certain items such as beer, potable alcohol and wines, cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive manufacturing in the small-scale sector. Conclusion While the rural market certainly offers a big attraction to marketers, it would be naïve to think that any company can enter the market without facing any problems and walk away with a sizable share. 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 this sector will grow, though it may not be a smooth growth path, due to the present world-wide economic slowdown, rising inflation and fall of the rupee. This sector will see good growth in the long run and hiring will continue to remain robust. 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.

11 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Anil Kumar Auto, IT & FMCG M. Vinayak Rao Diversified C. Bhagya Lakshmi Diversified B. Vasanthi Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com