HOLD. Performance remains weak COLGATE-PALMOLIVE INDIA. Target Price: Rs 900

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HOLD Target Price: Rs 900 Performance remains weak Net sales grew only 3% YoY as volumes declined ~3% due to sustained pressure in wholesale. Toothpaste market share declined 120 bps YoY to 54.1% but toothbrush market share grew 160 bps YoY to 47.4%. Higher A&P (+242 bps YoY to14%) offset benefits from lower RM cost (down 153 bps YoY at 37.5%) and other opex (down 89 bps YoY), resulting in OPMdecline of 29 bps YoY to 23.7%. We believe the slowdown in volume growth is structural given high penetration levels (92% in urban, 74% in rural) and strong competition from Dabur and Patanjali in natural segment.despite EPS CAGR of 4% over FY12-17 and market share loss of 400bps in the past two years, valuations remain elevated at forward P/E of 41x. MaintainHOLD with a revised TP of Rs 900 (Rs 840 earlier) based on forward P/E of 32x. CMP : Rs 994 Potential Upside : -9% MARKET DATA No. of Shares : 272 mn Free Float : 49% Market Cap : Rs 270 bn 52-week High / Low : Rs 1,049 / Rs 788 Avg. Daily vol. (6mth) : 3,85,708 shares Bloomberg Code : CLGT IB Equity Promoters Holding : 51% FII / DII : 16% / 9% Volume continues to disappoint:volume declined 3% YoY on further destocking in the wholesale channel which was under pressure due to the new cash transaction limit. The company expects restocking in the channel only after GST. In toothpaste, segments like family (Colgate Dental Cream), natural, kids and fresh posted modest growth but premium offerings like Colgate Total and Colgate Sensitive and value offering like Cibaca registered decline. Colgate CibacaVedshakti garnered ~0.5% market share pan-india. The company is trying to increase its presence in the personal care segment it launched men s range of bodywashes and shaving foams under Palmolive Men.It also introduced some packaging and product innovations in its Palmolive hand wash and bodywash range. Way forward: Structural slowdown in volume growth and rising competition from domestic players are the key medium-term challenges, while tailwinds from premiumization and slow-but-steady rise in per capita usage are long-term drivers. Hence, we expect volume growth of 5-7% over FY18-19. Given soft commodity prices, we expect current peak margins to be sustained. On a low base of FY17, we estimate sales and EPS CAGR of 13% and 15% over FY17-19. Financial summary (Standalone) Sales (Rs mn) 41,322 42,563 47,736 53,878 Adj PAT (Rs mn) 5,768 5,563 6,457 7,366 Con. EPS* (Rs) - - 25.1 29.1 EPS (Rs) 21.2 20.5 23.7 27.1 Change YOY (%) 3.2 (3.5) 16.1 14.1 P/E (x) 46.9 48.6 41.9 36.7 RoE (%) 64.5 48.7 50.6 56.8 RoCE (%) 88.5 68.6 70.3 78.0 EV/E (x) 28.8 28.6 25.3 22.5 DPS (Rs) 10.0 10.0 19.0 22.0 Source: *Consensus broker estimates, Company, Axis Capital Key drivers (%) FY17P FY18E FY19E Toothpaste Vol. growth -2.0 5.0 7.0 Net sales growth 3.0 12.2 12.9 Gross margin 65.6 65.2 64.7 EBITDA margin 22.0 22.2 22.2 Price performance 140 120 100 Sensex Colgate Palmolive (India) 80 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 01

Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17-12 -3 1 2 2 3 3 4 5 5 5 7 7 8 9 13 12 15 15 Exhibit 1: Result update (Rs. mn) Mar-17 Mar-16 % Chg Dec-16 % Chg Net Sales 10,326 10,079 2.5 8,650 19.4 Other operating income 49 77 (35.9) 96 (48.5) Total revenue 10,375 10,156 2.2 8,746 18.6 Raw material cost 3,877 3,939 (1.6) 3,159 22.7 (% of net sales) 37.5 39.1-153 bps 36.5 103 bps Staff expenditure 763 745 2.4 652 17.0 (% of net sales) 7.4 7.4 0 bps 7.5-15 bps A&P spends 1,443 1,164 24.0 839 71.9 (% of net sales) 14.0.5 242 bps 9.7 427 bps Other expenses 1,849 1,894 (2.4) 1,955 (5.4) (% of net sales) 17.9 18.8-89 bps 22.6-469 bps EBITDA 2,443 2,413 1.2 2,141 14.1 EBITDA margin (%) 23.7 23.9-29 bps 24.7-109 bps Other income 80 4 (29.5) 109 (26.5) PBIDT 2,523 2,527 (0.2) 2,250 12.2 Depreciation 341 297 14.8 342 (0.1) Interest 0 0 0 PBT 2,182 2,230 (2.1) 1,908 14.4 Tax 756 797 (5.1) 650 16.3 Adjusted PAT 1,426 1,433 (0.5) 1,258 13.3 Extra ordinary income/ (exp.) 0 0 20 Reported PAT 1,426 1,433 (0.5) 1,278.5 Exhibit 2: Toothpaste volume growth 24 (%) 16 8 0-8 -16 02

Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 38.2 39.0 39.5 41.5 41.4 41.4 41.5 42.3 42.9 42.6 41.8 42.1 43.3 44.5 45.3 45.8 46.8 47.2 48.2 47.4 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 54.5 54.3 54.2 55.4 55.9 56.0 56.0 57.1 56.9 56.1 55.3 54.5 54.1 56.7 57.8 57.0 56.4 55.9 55.9 58.0 Exhibit 3: Toothpaste volume market share 60 58 (%) 56 54 52 50 Exhibit 4: Per capita toothpaste consumption Current CY14 800 (gms) 600 400 200 603 599 547 458 374 312 280 212 158 147 0 Brazil USA Philipines China India Exhibit 5: Toothbrush volume market share 49 47 45 43 41 39 37 35 (%) 03

May-06 May-07 May-08 May-09 May-10 May- May-12 May-13 May-14 May-15 May-16 May-17 Exhibit 6: 1-year forward PE (on consensus estimates) 45 40 35 30 25 20 15 PE (x) 10 yr median Source: Bloomberg, Axis Capital 04

Financial summary (Standalone) Profit &loss (Rs mn) Net sales 41,322 42,563 47,736 53,878 Other operating income 301 304 340 374 Total operating income 41,623 42,866 48,076 54,252 Cost of goods sold (14,953) (14,934) (16,946) (19,396) Gross profit 26,670 27,932 31,130 34,856 Gross margin (%) 64.5 65.6 65.2 64.7 Total operating expenses (17,357) (18,556) (20,532) (22,889) EBITDA 9,313 9,376 10,598,967 EBITDA margin (%) 22.5 22.0 22.2 22.2 Depreciation (1,4) (1,332) (1,432) (1,591) EBIT 8,199 8,044 9,166 10,375 Net interest - - - - Other income 396 398 472 530 Profit before tax 8,595 8,442 9,637 10,905 Total taxation (2,827) (2,879) (3,180) (3,539) Tax rate (%) 32.9 34.1 33.0 32.5 Profit after tax 5,768 5,563 6,457 7,366 Minorities - - - - Profit/ Loss associate co(s) - - - - Adjusted net profit 5,768 5,563 6,457 7,366 Adj. PAT margin (%) 14.0 13.1 13.5 13.7 Net non-recurring items (3) 162 - - Reported net profit 5,765 5,725 6,457 7,366 Balance sheet (Rs mn) Paid-up capital 272 272 272 272 Reserves & surplus 9,923 12,374 12,6 12,776 Net worth 10,195 12,646 12,883 13,048 Borrowing 17 17 17 17 Other non-current liabilities 860 892 959 1,033 Total liabilities,071 13,554 13,859 14,098 Gross fixed assets 15,773 18,105 20,605 22,405 Less: Depreciation (5,691) (7,024) (8,456) (10,048) Net fixed assets 10,081,081 12,149 12,357 Add: Capital WIP 784 1,666 1,666 1,666 Total fixed assets 10,865 12,747 13,815 14,023 Total Investment 1,255 2,301 3,301 4,301 Inventory 2,927 2,927 3,089 3,701 Debtors 1,015 1,294 222 1,478 Cash & bank 1,929 1,840 2,603 1,191 Loans & advances 875 1,030 1,143 1,271 Current liabilities 8,365 9,230,043 12,685 Net current assets (1,576) (2,089) (3,936) (4,994) Other non-current assets 527 595 679 767 Total assets,071 13,554 13,859 14,098 Cash flow (Rs mn) Profit before tax 8,595 8,442 9,637 10,905 Depreciation & Amortisation 1,4 1,332 1,432 1,591 Chg in working capital 155 388 2,593 (368) Cash flow from operations 7,062 6,885 10,0 8,060 Capital expenditure (2,727) (3,214) (2,500) (1,800) Cash flow from investing (2,386) (3,862) (3,028) (2,270) Equity raised/ (repaid) - - - - Debt raised/ (repaid) - - - - Dividend paid (3,758) (3,274) (6,220) (7,202) Cash flow from financing (3,758) (3,274) (6,220) (7,202) Net chg in cash 918 (251) 763 (1,412) Key ratios OPERATIONAL FDEPS (Rs) 21.2 20.5 23.7 27.1 CEPS (Rs) 25.3 25.9 29.0 32.9 DPS (Rs) 10.0 10.0 19.0 22.0 Dividend payout ratio (%) 47.2 47.5 80.0 81.2 GROWTH Net sales (%) 4.5 3.0 12.2 12.9 EBITDA (%) 13.3 0.7 13.0 12.9 Adj net profit (%) 3.2 (3.5) 16.1 14.1 FDEPS (%) 3.2 (3.5) 16.1 14.1 PERFORMANCE RoE (%) 64.5 48.7 50.6 56.8 RoCE (%) 88.5 68.6 70.3 78.0 EFFICIENCY Asset turnover (x) 5.6 4.5 4.5 4.9 Sales/ total assets (x) 2.3 2.0 2.0 2.1 Working capital/ sales (x) (0.1) (0.1) (0.1) (0.1) Receivable days 9.0.1 1.7 10.0 Inventory days 33.1 31.9 30.1 31.9 Payable days 62.4 65.5 65.0 67.3 FINANCIAL STABILITY Total debt/ equity (x) - - - - Net debt/ equity (x) (0.2) (0.2) (0.2) (0.1) Current ratio (x) 0.8 0.8 0.6 0.6 Interest cover (x) - - - - VALUATION PE (x) 46.9 48.6 41.9 36.7 EV/ EBITDA (x) 28.8 28.6 25.3 22.5 EV/ Net sales (x) 6.5 6.3 5.6 5.0 PB (x) 26.5 21.4 21.0 20.7 Dividend yield (%) 1.0 1.0 1.9 2.2 Free cash flow yield (%) 1.6 1.0 2.4 1.9 05

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