31 May 2012
4QFY12 Results Update | Sector: Consumer
Colgate Palmolive
BSE SENSEX
S&P CNX
16,312
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
4,951
CLGT IN
136.0
1,250/875
12/17/43
160.9
2.9
CMP: INR1,183
TP: INR931
Sell
A
Colgate Palmolive's 4QFY12 PAT grew 14.6% YoY to INR1.3b (v/s est INR1.1b).
Toothpaste volume growth was healthy at 14%; market share during Jan-Apr 2012 is 54%, up 180bp YoY. Overall
volume growth was 12%.
EBITDA margin expanded 60bp YoY due to gross margin expansion of 100bp YoY and flat staff costs and ad
spends; PAT growth was surprising despite 400bp increase in tax rate.
During the quarter, CLGT launched Super Shine toothbrush, an additional variant of Plax mouthwash, and two
new variants of Palmolive body wash.
Toothpaste market is already witnessing a spurt of sales promotion activities as players like Colgate, HUL and
Dabur are going all out to increase share in the market where volumes are growing 10% CAGR. Also, CLGT has
been losing toothbrush market share to P&G's Oral-B in recent months, and has hence entered the premium
segment.
We believe CLGT is in midst of a price war to protect the market shares from existing as well as new competitors.
Profitability could get dented due to low / negative growth in realizations.
The stock enjoys rich valuation of 31.7x FY13E and 28x FY14E EPS. This is a 25% premium to its 5-year average
P/E which, we believe, prices in most positives. Maintain
Sell.
Amnish Aggarwal
(AmnishAggarwal@MotilalOswal.com); +9122 39825404

Colgate Palmolive
4QFY12 results: PAT up 14.6% despite 440bp increase in tax rate
Net sales grew 17.9% in line with est to INR6.8b (est INR6.8b) led by volume
growth of 12% (14% in toothpastes).
Gross margin expanded 100bp YoY to 59.9% (v/s est 60.4%; also 60.4% in 3Q) on
account of price hikes and improved sales mix.
Flat ad spends at 8.5% of sales and control over other overheads enabled 60bp
EBITDA margin expansion to 24.2%.
EBITDA grew 20.6% YoY to INR1.7b (est INR1.4b); despite 440bp increase in tax
rate, Adj PAT grew 15% to INR1.3b (est INR1.01b) on the back of 18% growth in
financial other income.
Overall volume growth of 12% ...
… led by a 14% volume growth in toothpastes (%)
Gross margins expand by 100bp YoY, while fall 50bp QoQ
EBITDA margins expands 60bp YoY
Source: Company/MOSL
Toothpaste volume growth healthy at 14%; aggressive promotions drive
sales growth
Volume growth in toothpastes remains healthy at 14% led by aggressive sales
promotions across the product portfolio. Volume market share during Jan-Apr
2012 is 54%, up 180bp YoY. Over the same period, mouthwash market share
increased to 26.2% from 25.7%.
CLGT continues to invest behind new launches e.g. Super Shine toothbrush, an
additional variant of Plax mouthwash, and two new variants of Palmolive body
wash.
31 May 2011
2

Colgate Palmolive
Toothpaste market is already witnessing flurry of activity as players like Colgate,
HUL and Dabur are going all out to increase share in the market which is growing
volumes by 10% CAGR. Also CLGT has been losing toothbrush market share to
P&G's Oral-B in recent months, and has hence entered the premium segment.
FY12 highlights and recap
FY12 sales grew 18.2% to INR26.2b; EBITDA margin declined 70bp to 22.1% due to
high input costs. EBITDA grew 14% and PAT 12.9% to INR4.5b.
In FY12, CLGT launched Colgate Sensitive Pro-relief and other brands like Max
Fresh and Active Salt besides the new launches stated earlier.
INR82.2mn was incurred as part of VRS scheme offered to employees of Hyderabad
factory.
INR426mn was paid towards the new toothpaste facility at Sanand, Gujarat.
CLGT paid a total dividend of INR25/share translating to a payout of 78%.
Valuations rich; factor in positives; maintain sell with a target price of INR931,
21% downside
We believe that with completion intensifying, CLGT's profits would remain under
check in the coming years on the back of (1) increase in ad spends due to new
players trying to gain share and existing players trying to protect it, (2) likely price
wars as toothpaste has very high stickiness and generating trials is not easy, and
(3) adverse impact on volume growth of incumbents.
Also the company has been constantly losing market share in the toothbrush
category to Oral B.
The stock enjoys rich valuation of 31.7x FY13E and 28x FY14E EPS which, we believe,
prices in most positives. Further, against a modest 12.5% EPS CAGR over FY12-14E,
the stock is trading at ~25% premium to its 5-year average P/E multiple. We value
the stock at 22x FY14 earnings with a target price of INR931, 21% downside. Maintain
Sell.
31 May 2011
3

Colgate Palmolive
Colgate Palmolive: an investment profile
Company description
Colgate is a market leader in the toothpaste segment
with a market share of ~53%. Oral care is one of the most
under penetrated segments of the FMCG market with a
penetration of ~31% in toothpowder and ~57% in
toothpaste. Colgate has invested Rs700m in a toothpaste
facility at Baddi in Himachal Pradesh which will accrue
fiscal benefits till FY15.
Recent developments
CLGT launched Super Shine toothbrush, an additional
variant of Plax mouthwash, and two new variants of
Palmolive body wash.
INR426mn was paid towards the new toothpaste
facility at Sanand, Gujarat.
Valuation and view
Our EPS estimates stand at INR37.4 for FY13 and
INR42.3 for FY14.
The stock enjoys rich valuation of 31.7x FY13E and
28x FY14E EPS. Maintain
Sell.
Key investment arguments
Colgate continues to maintain its leadership position
in the oral care market. It has been maintained its
market share over its main competitors.
Volume growth continues to be strong with
toothpaste growing in strong double digits led by
increasing conversions from toothpowder and
improved penetration.
Sector view
We have a cautious view on the sector on back of the
pressure on consumer wallets.
Companies with low competitive pressures and
broad product portfolios will be able to better with
stand any slowdown in a particular segment.
Longer term prospects bright, given rising income
levels and low penetration.
Key investment risks
P&G's entry in the oral care market with its Crest/
Oral B brand.
Slowdown in toothpaste volume growth as the
company is still a single segment company.
Comparative valuations
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
Colgate
31.7
28.0
22.9
19.6
5.1
4.4
31.1
25.8
HLL
29.9
26.0
22.1
18.9
3.4
3.0
20.9
16.7
Nestle
37.0
30.7
23.8
19.1
4.9
4.0
24.3
18.9
EPS: MOSL forecast v/s Consensus (INR)
MOSL
Forecast
37.4
42.3
Consensus
Forecast
37.1
43.0
Variation
(%)
0.8
-1.6
FY13
FY14
Target price and recommendation
Current
Price (INR)
1,183
Target
Price (INR)
931
Upside
(%)
-21.3
Reco.
Sell
Stock performance (1 year)
Shareholding Pattern (%)
Mar-12
Promoter
Domestic Inst
Foreign
Others
31 May 2011
51.0
6.6
20.5
21.9
Dec-11
51.0
7.3
20.0
21.8
Mar-11
51.0
7.2
19.0
22.8
4

Colgate Palmolive
Financials and Valuation
31 May 2011
5

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