Result Update Rating matrix Rating : Hold Target : 1919 Target Period : 12 months Potential Upside : 2% What s changed? Target Changed from 1672 to 1919 EPS FY15E Changed from 41.7 to 41.3 EPS FY16E Changed from 47.8 to 47.9 EPS FY17E Introduced 54.8 Rating Unchanged Quarterly performance Q2FY15 Q2FY14 YoY (%) Q1FY15 QoQ (%) Sales 993.6 895.7 1.9 95.6 4.5 EBITDA 186.5 146.3 27.5 193.7-3.7 EBITDA (%) 18.6 16.2 24 bps 2.2-16 bps PAT 129.6 19.5 18.3 134.9-4. Key financials Crore FY14 FY15 FY16E FY17E Net Sales 3,544.9 4,79.8 4,74.8 5,45.6 EBITDA 664. 799.6 946.5 1,93. PAT 496.8 539.9 561.2 651.7 EPS ( ) 36.5 39.7 41.3 47.9 Adj. EPS ( ) 496.8 492.1 561.2 651.7 Valuation summary FY14 FY15 FY16E FY17E P/E 51.9 45.5 39.2 34.2 Target P/E 45.8 42.1 4.5 34.9 Div. Yield 1.4 1.8 1.9 2.2 Mcap/Sales 7.2 6.3 5.4 4.7 RoNW (%) 9. 78.8 74.5 71.1 RoCE (%) 12.2 12.6 99.6 96.6 Stock data Particular Amount Market Capitalization ( Crore) 25,525.9 Total Debt (FY14) ( Crore). Cash and Investments (FY14) ( Crore) 287. EV ( Crore) 25,238.9 52 week H/L 187 / 119 Equity capital 13.6 Crore Face value 1 Price performance 1M 3M 6M 12M Colgate 2.3 16.4 25.8 43.9 Dabur 5. 12.3 27.9 35.4 HUL 3.4 8.2 37. 28.7 Gillette 5.7 28.3 59.2 46.9 Analyst Sanjay Manyal sanjay.manyal@icicisecurities.com Parineeta Rajgarhia parineeta.rajgarhia@icicisecurities.com Volume recovers, margin expands November 1, 214 Colgate-Palmolive India (COLPAL) 1877 Colgate Palmolive s Q2FY15 numbers were marginally below our estimate on both sales & earnings front. Net sales grew 1.9% to 993.6 crore (I-direct estimate: 136.7 crore) led by strong 7% volume growth in toothpaste Operating margins increased 24 bps to 18.6% mainly on account of softening raw material cost & overhead expenses despite a sharp increase in marketing cost Market share (January-September 214) in toothpaste rose to 56.7% vs. 55.9% YoY while in toothbrush it was up to 42.6% vs. 41.5% YoY Market share continues to strengthen! Colgate Palmolive (CPIL) is the largest player in the oral care segment in India with the market share (June, 214) of 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, 213 (brand: Oral B), CPIL s market share has only strengthened. CPIL has increased its market share in toothpaste from 54.7% in June, 212 to 57.1% in April, 214. Similarly, the market share in toothbrush has also increased from 38.7% to 42.3% for the same period. We believe the second largest player in the toothpaste category, HUL, is losing its market share with Dabur India inching share from ~1% 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. The combined share of all these regional brands has slipped to ~2% (213) from more than 5% two years ago and ~ 15% share 1 years back. Advertisement & promotions continue to ride higher In the last two years, Colgate has been very aggressive in its A&P activity especially after P&G s launch of Oral-B toothpaste and GSK consumer expanding its market presence in the sensitive toothpaste category. The A&P expenditure for Colgate has increased to 19.4% of sales in FY14 and 2% in Q2FY15 from 15-16% earlier. We expect the company to maintain a higher A&P expense to maintain its market share and push new launches. We have modelled A&P expenses of 19% in FY15E and 18% of sales in FY16E and FY17E, respectively. Innovations at forefront 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 (sensitive toothpaste, gum care toothpaste, electric brush, kids brush, etc). Lately, it has been aggressive on extension of its premium portfolio to capture the up-trading consumers. In FY14, it launched two varieties of toothpastes (Active healthy White, Max Fresh Tea) and Slim Soft Toothbrushes. In June, 214 CPIL launched Max Protection Plus Sugar Acid Neutralizer toothpaste. Hence, with constant innovations and higher A&P spends, we believe Colgate would continue to remain the dominant player and be the largest beneficiary of increasing penetration levels in the country (currently at ~75%). Earnings growth to remain healthy; maintain HOLD Led by CPIL s constant effort to innovate its portfolio and drive premiumisation in oral care, we expect margins to improve to 19.9% by FY17E aiding healthy profitability growth of 11.4% CAGR (FY14-17E). We value the stock on triangulated valuation method (DCF, EV/EBITDA and price/sales) and arrive at a target price of 1919/share. ICICI Securities Ltd Retail Equity Research
Variance analysis Q2FY15 Q2FY15E Q2FY14 YoY (%) Q1FY15 QoQ (%) Comments Net Sales 993.6 1,36.7 895.7 1.9 95.6 4.5 Revenues witnessed 1.9% growth led by 7% volume growth in toothpaste and continued dominant market share above 56% Operating Income 7. 5.8 5. 37.9 6.3 11. Raw Material Expenses 373. 41.3 362.1 3. 357.2 4.4 Raw material cost started softening on account of lower crude prices Employee Expenses 68.1 67.4 53.5 27.4 58.4 16.6 SG&A Expenses 21. 191.8 119.5 68.2 18.6 11.3 A&P expenditure increase aided volume growth in toothpaste segment Other operating Expenses 171.9 18.4 219.4-21.6 167.1 2.9 EBITDA 186.5 192.6 146.3 27.5 193.7-3.7 EBITDA Margin (%) 18.6 18.5 16.2 24 bps 2.2-16 bps Operating margins expanded on the back of lower RM cost & overhead expenses Depreciation 16.6 17.3 11.7 41.9 16.6. Interest... NA. NA Other Income 9.9 15. 13. -23.8 6.5 53.8 PBT before exceptional 178.7 19.3 147.7 21. 183.6-2.6 Exceptional Items... NA. - Tax Outgo 49.1 54.2 38.2 28.7 48.7 1. PAT 129.6 136.1 19.5 18.3 134.9-4. Earnings witnessed 18.3% increase on account of healthy margins Key Metrics YoY growth (%) Volume Growth overall 7. 7. 1. -3 bps 5. NA Volume growth recovered to 7% from 5% in Q1FY15 Volume Growth (Toothpastes) NA NA 9. NA NA NA Volume Mkt Share (Toothpaste) 56.7 NA 55.9 8 bps 57. -3 bps Continues to expand market share at the expense of No. 2 player Volume Mkt Share (Toothbrush) 42.6 NA 41.5 11 bps 42.6 bps Change in estimates FY15E FY16E FY17E ( Crore) Old New % Change Old New % Change New Comments Sales 4,87.1 4,79.8 -.2 4,683.3 4,74.8 1.2 545.6 We introduce FY17E number expecting a healthy 15% growth in revenues EBITDA 782.6 799.6 2.2 934.3 946.5 1.3 193. EBITDA Margin (%) 19. 19.5 47 bps 19.8 19.8 3 bps 19.9 We expect the company to expand its market share with lower spend on advertisement PAT 553. 561.2 1.5 65.7 651.7.2 745.9 EPS ( ) 4.7 41.3 1.5 47.8 47.9.2 54.8 Assumptions Current Earlier Comments FY13 FY14 FY15E FY16E FY17E FY15E FY16E Toothpaste Vol. Growth(%) 1. 9.4 9.4 8.8 8.8 9.4 9.4 We expect the company to witness 8-1% volume growth, going forward Toothpaste Value Growth(%) 18.2 14. 14.8 13.9 14.2 14.8 14.8 Toothbrush Vol. Growth(%) 19. 19.5 17.5 15. 15. 9.5 9.5 Toothbrush Value Growth(%) 22.2 29.1 2.4 19. 19.3 12.2 12.2 Raw Material/Sales % 4.5 39.6 38.2 39.5 39.6 4.1 4.1 RM cost to soften with commodity prices cooling off Marketing Exp./Sales % 15.9 19.4 19. 18. 18. 18. 18. A&P spend continues to remain above 18%, going forward ICICI Securities Ltd Retail Equity Research Page 2
Company Analysis Sustained market share to keep revenue growth healthy at 15.6% CAGR CPIL has successfully maintained its market leadership in the oral care segment with 56% share by volume (213) in the toothpaste category and 41.5% volume share (213) in the toothbrush category. The nearest competitors in the toothpaste and toothbrush categories are at almost half the share of CPIL with 22.8% (213) and ~28% (213) share by volume, respectively. With the ability to maintain the premium in its market share and comprehensive oral care portfolio, CPIL registered strong revenue growth of 16.5% CAGR (FY8-13). Going ahead, we believe that led by CPIL s strong brand equity it would continue to maintain its dominance in the segment and further boost its revenue growth through increasing presence in rural India. Hence, we expect healthy revenue CAGR of 15.6% in FY14-17E led by ~9% volume CAGR. Exhibit 1: Revenue CAGR to remain healthy at 15.4% (FY14-17E) 6 5 4 3 2 1 13.8 21.3 15. 15.8 16.2 14.5 14.9 15.1 13.2 15. 1473 1695 1962 2221 2693 384 3545 48 4741 5451 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15E FY16E FY17E 25 2 15 1 5 Revenues in crore (LHS) Revenue Growth (YoY) in % (RHS) Exhibit 2: CPIL's market share has only strengthened over the years 58 57 57 56 56 55 55 54 54 53 53 52 54. 54.5 38.7 41.5 41.4 41.4 41.5 39.3 39.8 55.4 55.9 56 56 54.6 54.5 42.3 57.1 42.6 57. 42.6 56.7 43 42 41 4 39 38 37 36 Mar,'12 Jun,'12 Sep,'12 CY12 Mar,'13 Jun,'13 Sep,'13 CY13 April,'14 June,'14 Sept ' 14 Toothpastes - LHS Toothbrush - RHS ICICI Securities Ltd Retail Equity Research Page 3
Dominance in oral care continues with sustained market share gains Led by the dominance of CPIL in toothpastes with a presence across premium, popular and mass categories and having SKUs across variants (regular, sensitive, herbal, whitening, gum care, freshness), CPIL s market share in toothpaste has strengthened from 49.4% in CY8 to 56% in CY13. Aided by the strengthening market share, toothpaste revenues (~75% of CPIL s revenues in FY13) and increasing penetration revenues from the segment have grown at a CAGR of 16.9% in FY8-13. Going ahead, we believe that with toothpaste per capita consumption expected to grow at 5.6% CAGR in FY13-23E to ~24 gm by FY23E and Colgate s ability to maintain its market leadership through increasing innovation and distribution, CPIL s toothpaste volume CAGR would remain strong at 9% in FY14-17. Further, with new launches both in the premium and economy segments maintaining their pace, we expect CPIL to post value growth of 14.3% CAGR in FY14-17E. Exhibit 3: Toothpaste revenue growth to remain healthy at 14.3 CAGR Exhibit 4: Volume growth to remain healthy at ~9% 6 5 4 3 2 1 4855 3732 4252 325 2852 2414 139 1492 1747 1978 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15E FY16E FY17E 25 2 15 1 5 22.1 17. 18.2 14. 11. 12. 12. 13.2 14. 14. 14.8 13.9 14.2 1. 9.4 9.4 8.8 8.8 FY9 FY1 FY11 FY12 FY13 FY14E FY15E FY16E FY17E Volume Growth Value Growth The decline in toothbrush volume in FY8 was on the back of a significant increase in volume in FY7 led by a promotion offer by the company in FY7. We believe the offer was implemented by the company to de-stock its toothbrush inventory from its Sewri unit. The unit was shut down during that year and the company shifted the manufacturing of toothbrushes capacity to the Baddi unit Strengthening presence in toothbrush to sustain growth at 19.7% CAGR (FY14-17E) CPIL s undeterred market share at 41.5% (CY13) in the toothbrush segment (~11% of revenues in FY13) has been led by strong volume CAGR (FY8-13) of 21.2% and value CAGR of 19.4% (FY8-13). The company s brand strength has enabled it to grab market share of unbranded players. Further, CPIL s nearest competitor, P&G, with brand Oral-B, continues to maintain a distant No.2 position in the segment with ~19% volume share in the segment. We believe that with the upgrading consumer needs in rural markets and uptrading demand by urban consumer, CPIL s revenues from the toothbrush segment would continue to grow at 19.7% CAGR (FY14-17E) led by healthy volume CAGR of 15.8%. We expect CPIL s strong brand equity to aid in further strengthening the market share for the company in the toothbrush segment. Exhibit 5: Toothbrush revenue growth to remain strong at 19.7% CAGR 1 865 8 723 68 6 54 391 4 32 161 2 213 247 2 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Exhibit 6: led by volume CAGR of ~16% 4 29.7 26.8 29.1 3 24.2 24.7 21.6 26. 22.2 2.4 19. 19.6 14.9 19. 19.5 2 15.6 17.5 15. 15. 1 6.6-1 FY8 FY9 FY1 FY11 FY12 FY13 FY14E FY15E FY16E FY17E -7.9 Volume Growth Value Growth ICICI Securities Ltd Retail Equity Research Page 4
Increasing penetration, per capita consumption to aid growth The penetration of toothpaste in India is ~71% (212), with ~35 crore of the population still using conventional methods of brushing. Though urban penetration is higher at ~91% (212), rural penetration lags behind at only 63% (212). Hence, we believe there lies a huge untapped opportunity for CPIL to increase its reach and volumes being the market leader of the segment. Further, the overall per capita consumption of toothpaste in India is significantly lower at 137 gm (212) compared to other developing nations, China at 277 gm, Philippines at 374 gm and Brazil at 622 gm, providing enough room for CPIL to maintain its volume growth. We believe increase in volume growth & per capita consumption would come through increasing awareness on oral hygiene, change in consumer habits (brushing twice daily) and increasing penetration, aiding the company to maintain its healthy volume and value growth. Margins to gain strength on improving mix CPIL s EBITDA margins have improved significantly from 15.4% in FY8 to 2.8% in FY13 led by gross margin expansion and increasing contribution of premium products in revenues. Led by the company s strong brand equity, CPIL enjoys strong pricing power in the oral care industry enabling it to easily pass on higher raw material cost through increasing prices without impacting its volume growth and concurrently expanding its gross margins. Hence, higher gross margins have enabled the company to expand its EBITDA margins. Since Q1FY14, however, CPIL s margins have been witnessing moderation following the increased competitive action in the oral care industry and slowing urban consumption demand (moderating the rate of premiumisation in the segment). The increased competitive activity (HUL s aggressiveness and P&G s re-entry) has pulled up the marketing & other expenditure (includes sales promotion expenses) of CPIL, thereby moderating its margins to 18.6% in FY14. We believe that though high marketing expenses have stressed margins in the near term, they have aided CPIL in maintaining its market share and a healthy volume growth in a tough scenario. The change in portfolio mix aided by higher marketing spends has already improved the margins to 2.2% in Q1FY15. Hence, we believe that as consumption demand revives (driving premiumisation) and CPIL further gains market share in the segment, EBITDA margins would trend back to 19.8% by FY16E &19.9% in FY17E. Exhibit 7: EBITDA margins to improve to 19.9% by FY17E 12 1 8 6 4 21.6 21.5 2.2 2.8 18.6 15.4 15.4 19.5 19.8 8 946 19.9 193 25 2 15 1 2 227 26 424 449 579 657 664 5 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15E FY16E FY17E EBITDA ( crore) - LHS EBITDA Margin (%) - RHS ICICI Securities Ltd Retail Equity Research Page 5
Exhibit 8: Marketing expenses to remain high until FY17E Exhibit 9: RM cost to sales ratio to remain low at ~4% until FY17E 25 2 15 1 5 16.4 15.4 16. 16.2 16.7 17.3 17.4 17.2 17.1 19.4 19. 18. 18. 16.1 15.3 15.8 15.3 15.9 46 44 42 4 38 36 43.7 39.6 39.3 39. 4.5 39.6 38.2 39.5 39.6 34 FY9 FY1 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY9 FY1 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Marketing Expenses to Sales % Other Expenditure to sales % Raw Material Expenses to Sales % Brand strength to aid in fighting competition CPIL s brand strength has aided in keep competition away and maintaining its strong dominance in toothpaste and toothbrush. However, since H1FY14 (re-entry of P&G and expanding portfolio by Dabur, GSK Consumer, HUL), competition has been getting aggressive targeting the huge untapped opportunity of the segment. This has pulled up CPIL s sales & promotion expenses ~3% YoY pressurising margins (declined from ~21% in FY13 to ~18% in FY14). Though margins have been stressed, CPIL s market share has further strengthened led by CPIL s high brand equity aiding in keeping competition at bay. We believe there could be near term challenges for margins. However, with CPIL s ability to innovate and maintain its dominance, margins would revive. Higher taxes to limit PAT growth Though we believe CPIL s margins would get back to higher levels of ~2% by FY16E, PAT growth is estimated to moderate to 9.8% CAGR (FY14-16E) against 16.5% CAGR (FY8-13). The moderation in earnings growth would be led by higher tax incidence on CPIL s Baddi plant (Himachal Pradesh). CPIL s Baddi plant was under 1% tax exemption until March, 21 and is currently enjoying ~3% tax exemption until FY15, after which it will enjoy no further exemptions. We estimate the effective tax rate for CPIL will increase from 25.8% in FY14 to 3% in FY16E & FY17E, keeping earnings growth of CPIL under check. Exhibit 1: PAT growth to moderate following higher tax incidence 8 7 6 5 4 3 2 1 3. 3. 27.8 24.1 25.1 25.8 22.6 16. 12.7 29.2 423.3 45.2 446.5 496.8 539.9 561.2 651.7 745.9 FY9 FY1 FY11 FY12 FY13 FY14E FY15E FY16E FY17E 35 3 25 2 15 1 5 PAT ( crore) Tax Rate (% of PBT) ICICI Securities Ltd Retail Equity Research Page 6
High dividend payout and strong return ratios CPIL has had exceptional return ratios of more than 1% mainly due to high dividend payout of ~7% and ~ 56 crore of free cash flow in FY13. The free cash flow of CPIL has increased from 38 crore in FY8 to 56 crore in FY13. Return ratios for CPIL have remained on a higher trajectory of ~1% since FY8 following the capital reduction by the company in FY8 and reducing the face value to 1/share from 1/share. This improved the RoE from 57.1% in FY7 to 142.8% in FY8. With no major capex plans lined up by the company, we expect the payout to sustain at ~75% until FY16E, thereby keeping return ratios at healthy levels. The dividend payout dipped slightly in FY14E following CPIL s capex in new facilities in Sanand, Gujarat and Sricity, Andhra Pradesh. However, with the Gujarat plant already in operation from Q1FY15 onwards and no new capex plans ahead, we expect the dividend payout to increase again to ~75% in FY15E. Exhibit 11: Return ratios to remain at elevated levels Exhibit 12: Dividend payout to return to ~75% by FY17E 13 12 11 1 9 8 FY9 FY1 FY11 FY12 FY13 FY14E FY15E FY16E FY17E RoCE (%) - LHS RoNW(%) - RHS 15 13 11 9 7 5 3 9 8 7 6 5 4 3 2 1 FY9 FY1 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Dividend Per share ( ) - RHS Dividend Payout (%) - LHS 45 4 35 3 25 2 15 1 5 ICICI Securities Ltd Retail Equity Research Page 7
Outlook & valuation With Colgate s strengthening presence in toothpastes in spite of fierce competition in the segment, we remain positive on the long term growth driven by increasing per-capita consumption and premiumisation in the segment. The company s unmatched product portfolio would continue to maintain its dominance in the oral care segment. Though there are few near term concerns for margins given the increased competitive intensity in the segment, we believe CPIL s higher marketing spends and strengthening market share would continue to yield positive long term returns for the company. However, we remain wary of the expensive valuations of the company. CPIL is currently trading at 34x its FY16E EPS of 47.9, higher than its historical average P/E of 28x. We value CPIL on triangulated valuation method, assigning 5% weightage to price to sales multiple, 4% weightage to DCF and 1% to EV/EBITDA, arriving at a target price of 1919 per share. We maintain our HOLD recommendation on the stock. Exhibit 13: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY14 3544.9 31.6 36.2 21.5 51.9 38. 9. 12.2 FY15E 479.8 15.1 41.3 14. 45.5 31.4 78.8 12.6 FY16E 474.8 16.2 47.9 16.1 39.2 26.3 74.5 99.6 FY17E 545.6 15. 54.8 14.5 34.2 22.8 71.1 96.6 ICICI Securities Ltd Retail Equity Research Page 8
Company snapshot 2, 1,6 Target Price 1919 1,2 8 4 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Jul-9 Event Rise in share price aided by a special dividend of 8/share and the increasing attractiveness of the defensives (FMCG Index) following the economic downturn Nov-9 Second interim dividend of 7/share taking the total dividend in H1FY1 to 15/share May-1 The company did not pay any final dividend keeping the dividend per share for FY1 restricted at 2/share Jul-1 First interim dividend for FY11 of 1/share Mar-11 Lacklustre performance of the stock following lower sales growth of ~13% and a decline in margins and net profit following increased competition May-12 Significant jump in performance with reported sales growth of ~21% YoY, volume growth of ~12% and improvement in margins. Also, with a run up in FMCG stocks, following the robust growth and subdued performance in other sectors, the stock price witnessed significant gains Jan-13 Stock gained significantly mirroring the FMCG Index led by the preference of defensives with strong market leadership in a weak economic scenario Jun-13 The re-entry of P&G in the oral care market in the country increased pressure on the stock considering the concerns of increasing competition from a fierce player. Also, following the entry, Colgate's marketing expenses were expected to increase, pressurising margins Nov-13 The concerns on subdued FMCG volume growth with softening consumer demand impacted the performance of the complete FMCG Index also impacting Colgate's stock performance Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 State Street Global Advisors (US) 3-Jun-14 7.31 66.6.8 2 The Vanguard Group, Inc. 3-Jun-14 5.71 52..8 3 Fidelity Management & Research Company 3-Jun-14 4.77 43.5.8 4 BlackRock Institutional Trust Company, N.A. 3-Sep-14 3.67 33.5.2 5 MFS Investment Management 3-Jun-14 2.26 2.6.4 6 Walter Scott & Partners Ltd. 3-Jun-14 1.51 13.8 -.5 7 Janus Capital Management LLC 3-Jun-14 1.9 1. -.2 8 Renaissance Technologies Corp. 3-Jun-14 1.5 9.6 2.3 9 Wellington Management Company, LLP 3-Jun-14.96 8.8.1 1 State Farm Insurance Companies 3-Jun-14.94 8.5. Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Promoter 51. 51. 51. 51. 51. FII 19.82 2.1 19.97 2.63 19.97 DII 6.66 6.54 6.98 6.65 6.98 Others 22.52 22.45 22.5 21.72 22.5 Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Renaissance Technologies Corp. 154.3m 2.26m Lansdowne Partners (UK) LLP -59.82m -7.86m GenSpring Family Offices, LLC 135.26m 1.98m Independent Franchise Partners LLP -275.82m -4.5m The Boston Company Asset Management, LLC 118.25m 1.73m Magellan Asset Management Limited -16.28m -2.55m Lord, Abbett & Co. LLC 18.38m 1.59m American Century Investment Management, Inc. -151.4m -2.46m Santa Barbara Asset Management, LLC 91.76m 1.35m Pioneer Investment Management, Inc. -12.28m -1.84m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 9
Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15E FY16E FY17E Total Operating Income 3578.8 418.9 4773.6 5487.5 Growth (%) 13.1 14.8 16.2 15. Raw Material Expenses 1,42. 1,558.8 1,872.7 2,158.6 Employee Expenses 211.8 262.6 284.5 324.3 Marketing Expenses 688.7 776.6 853.4 981.1 Administrative Expenses 87.4 85.4 189.6 212.6 Other expenses 349.7 625.8 627. 717.8 Total Operating Expenditure 2,914.8 3,39.2 3,827.1 4,394.5 EBITDA 664. 799.6 946.5 1,93. Growth (%) 1.1 2.4 18.4 15.5 Depreciation 5.8 68.8 75.5 79.7 Interest.... Other Income 5.3 46.4 6. 52.2 PBT 663.6 777.2 93.9 1,65.5 Exceptional items 64.4... Total Tax 188.1 216. 279.3 319.7 PAT 539.9 561.2 651.7 745.9 Growth (%) 8.7 3.9 16.1 14.5 EPS ( ) 39.7 41.3 47.9 54.8 Cash flow statement Crore (Year-end March) FY14 FY15E FY16E FY17E Profit/Loss after Tax 539.9 561.2 651.7 745.9 Add: Depreciation 5.8 68.8 75.5 79.7 Add: Interest.... (Inc)/dec in Current Assets -2.6-155.7-42.7-29.1 Inc/(dec) in Current Liabilities 81.8 114.6 133.3 73.2 CF from operating activities 651.8 588.9 817.8 689.6 (Inc)/dec in Investments. -2. -2. -15. (Inc)/dec in Fixed Assets -365.5-9. -1.. Others 1.4 62.6.. CF from investing activities -364.1-47.4-12. -15. Issue/(Buy back) of Equity.... Inc/(dec) in loan funds.... Dividend paid & dividend tax -429.6-448.8-489.6-571.2 Inc/(dec) in Sec. premium.... Others.... CF from financing activities -429.6-448.8-489.6-571.2 Net Cash flow -141.8 92.7 28.2-31.5 Opening Cash 428.8 287. 379.7 587.9 Closing Cash 287. 379.7 587.9 556.4 Balance sheet Crore FY14 FY15E FY16E FY17E Liabilities Equity Capital 13.6 13.6 13.6 13.6 Reserve and Surplus 586.3 698.7 86.7 1,35.4 Total Shareholders funds 599.9 712.3 874.3 1,49. Total Debt.... Long Term Provisions 24.9 24.9 24.9 24.9 Other Non-current Liabilities.7.7.7.7 Total Liabilities 625.5 737.9 899.9 1,74.6 Assets Gross Block 992.7 1,82.7 1,182.7 1,182.7 Less: Acc Depreciation 436.8 55.6 581.2 66.9 Net Block 555.9 577.1 61.5 521.8 Capital WIP 141.5 141.5 141.5 141.5 Deferred Tax Asset 17.8 17.8 17.8 17.8 Non Current Investments 37.1 57.1 77.1 227.1 LT Loans & Advances/Others 64.6 2.1 2.1 2.1 Current Assets Inventory 225.7 279.4 337.7 433.1 Debtors 54.7 123. 18. 119.5 Cash 287. 379.7 587.9 556.4 Loans & Advances 12.7 132.6 128. 228.9 Other Current Assets 1.7 5.5 9.5 1.9 Current Liabilities Creditors 51. 558.9 636.4 716.8 Provisions 7.4 9.5 95.5 86. Other CL 282.9 328.5 379.3 381.5 Net Current Assets -191.5-57.7 59.9 164.4 Total Assets 625.5 737.9 899.9 1,74.6 Key ratios (Year-end March) FY14 FY15E FY16E FY17E Per share data ( ) EPS 39.7 41.3 47.9 54.8 Cash EPS 43.4 46.3 53.5 6.7 BV 44.1 52.4 64.3 77.1 DPS 27. 33. 36. 42. Cash Per Share 21.1 27.9 43.2 4.9 Operating Ratios (%) EBITDA Margin 18.6 19.5 19.8 19.9 PBT / Net Sales 2.5 19. 19.6 19.5 PAT Margin 15.2 13.8 13.7 13.7 Inventory days 11. 1. 11.. Debtor days 5.6 11. 8.3 8. Creditor days 52.5 5. 49. 48. Return Ratios (%) RoE 9. 78.8 74.5 71.1 RoCE 12.2 12.6 99.6 96.6 RoA 86.3 76.1 72.4 69.4 Valuation Ratios (x) P/E 47.3 45.5 39.2 34.2 EV / EBITDA 38. 31.4 26.3 22.8 EV / Net Sales 7.1 6.2 5.3 4.6 Market Cap / Sales 7.2 6.3 5.4 4.7 Price to Book Value 42.6 35.8 29.2 24.3 Solvency Ratios Debt/EBITDA.... Debt / Equity.... Current Ratio.8.9 1.1 1.1 Quick Ratio.5.7.8.8. ICICI Securities Ltd Retail Equity Research Page 1
ICICIdirect.com coverage universe (FMCG) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Colgate (COLPAL) 1,877 1,919 Hold 25,526 39.7 41.3 47.9 47.3 45.5 39.2 38. 31.4 26.3 12.2 12.6 99.6 9. 78.8 74.5 Dabur India (DABIND) 226 23 Hold 39,236 5.2 6.4 7.5 43.1 35.2 3.3 42.9 35. 3.2 42.4 43.4 42.3 38.3 36.8 33.7 Hindustan Unilever (HINLEV) 771 755 Hold 155,51 17.9 19.4 21.3 43.1 39.8 36.3 34.1 28.5 25.3 128.6 131.6 129.9 118. 19.6 14.4 ITC Limited (ITC) 371 387 Hold 282,339 11. 12.2 14.5 33.6 3.4 25.6 22.4 19.7 17.1 43.7 44.8 48.5 33.5 33.4 36.9 Jyothy Lab (JYOLAB) 242 188 Hold 4,38 4.5 1.3 12.4 53.8 23.4 19.5 3.8 23.1 19.1 1.5 13.3 14.6 11.1 22.1 23. Marico (MARIN) 317 38 Buy 18,72 7.5 9.4 11. 42.1 33.6 28.8 26. 21. 17.5 37.5 52. 5. 29. 37.6 32.8 Nestle (NESIND) 6,351 6,123 Hold 59,84 115.9 12.7 137.2 54.8 52.6 46.3 3.1 28.6 25.8 46. 66.2 71.2 47.2 44.9 49.3 Tata Global Bev (TATTEA) 157 182 Buy 9,338 7.8 7. 8.6 2.2 22.5 18.2 12.9 11.6 9.7 8. 8.4 9.6 8.2 7.1 8.2 VST Industries (VSTIND) 1,82 1,872 Hold 2,714 97.2 92.9 98. 18.7 19.6 18.6 12.2 11.6 1.6 58.4 57.7 59.2 45.8 41.6 41.9 ICICI Securities Ltd Retail Equity Research Page 11
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Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ANALYST CERTIFICATION We /I, Sanjay Manyal, MBA (Finance); Parineeta Rajgarhia, MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. 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