1 July 2013
Update | Sector: Consumer
Colgate Palmolive
BSE SENSEX
S&P CNX
19,396
5,842
CMP: INR1,353
TP: INR1,400
Neutral
P&G enters toothpaste category; gradual national launch ahead
CLGT unlikely to be materially impacted; maintain Neutral
Bloomberg
CLGT IN
Equity Shares (m)
136.3
M.Cap. (INR b)/(USD b)
184/3.1
52-Week Range (INR) 1580/1118
1,6,12 Rel. Perf. (%)
-5/-12/1
Valuation summary (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
37.0
35.5
27.1
1.9
31.4
29.4
22.3
2.2
26.7
24.5
19.1
2.6
2013 2014E 2015E
30.8
6.6
5.0
36.5
11.3
38.1
35.4
7.9
5.9
43.1
18.1
46.0
41.0
9.2
6.9
50.6
17.4
55.3
99.9
70.0
P&G has entered toothpastes, with the launch of three variants under the Oral B
brand.
We do not expect this to create material disruption for CLGT, given its wide product
portfolio, well entrenched brand equity and deeply penetrated distribution network.
While we envisage continuation of media aggression from P&G, we believe it is unlikely
to precipitate a price war in the category.
We do not foresee material erosion in CLGT’s market share. The entry of an MNC with
deep pockets may expand the category, and being the market leader, CLGT could also
benefit.
We maintain our Neutral rating, given expensive valuations (31.4x FY14E and 26.7x
FY15E earnings).
Sector’s most awaited and speculated launch
108.4 102.6
70.0
70.0
108.5 102.7 100.0
Shareholding pattern %
As on
Mar-13 Dec-12 Mar-12
Promoter
51.1
51.1
51.0
Dom. Inst
5.2
5.4
6.6
Foreign
21.9
21.8
20.5
Others
21.9
21.8
21.9
As expected, P&G has launched
Oral B
toothpaste with effect from 1 July
2013. This ends the decade-old speculation around P&G’s impending entry
into Oral Care.
There will be three variants (Basic:
All Rounder 32,
Gel:
All Rounder Gel,
and
Sensitive:
Pro-Health)
and 3-4 pack sizes.
It has priced its SKU in Popular and Sensitive segment at premium to
Colgate
while in Gel segment pricing is at a discount (detailed table on next page).
In the initial phase, the launch will be restricted to the metros and will be
gradually extended to other geographies. This is similar to what P&G did in
2007, when it entered Skin Care through
Olay.
P&G will initially focus on modern trade to build strong visibility for the
brand.
P&G will launch 12 SKUs under 3 variants in Oral B
Sr. Nos
1
2
3
4
5
6
7
8
9
10
11
12
Variant
All Rounder32
All Rounder32
All Rounder32
All Rounder32
All Rounder GEL
All Rounder GEL
All Rounder GEL
Pro Health
Pro Health
All Rounder32
All Rounder GEL
Pro Health
Grammage
40g
80g
140g
190g
35g
80g
140g
75g
140g
140g*2
140g*2
140g*2
Source: Company, MOSL
Stock performance (1 year)
Investors are advised to refer through
disclosures made at the end of the
Research Report.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
1

Colgate Palmolive
P&G is pricing its SKU's at premium in Popular and Premium category, at a discount in Gel
Company
Gillette
Brand
Oral B
Segment
Basic/popular
Freshness/Gel
Premium/Sensitive
Variant
All Rounder 32
Extra Fresh Gel
Pro- Health
Grammage
(gm)
80
80
75
Price
(INR)
35
36
58
Price indexed Premium /Dis to
to 100gm Colgate's SKU (%)
43.8
45.0
77.3
22
-14.3
20
Source: Company, MOSL
Toothpastes: Pricing details of select brands and variants
Company Brand
Colgate
Colgate
Variant
Total
Total
Total - Progum
Sensitive Pro Relief
Sensitive Original
Sensitive Original
Visible White
Max Fresh
Herbal
CDC
CDC
CDC
Cibaca
Active Salt
Grammag (gm) Price (INR)
70
55
140
90
140
92
70
85
80
75
40
49
50
40
80
42
100
44
100
37
200
72
300
109
350
70
200
75
150
300
80
150
80
300
80
35
100
150
300
80
80
100
200
300
200
200
185
40
80
40
150
40
80
175
100
100
100
Price indexed to 100gm
78.6
64.3
65.7
10 INR off
121.4
15 INR off
93.8
10 gm extra
122.5
80.0
52.5
44.0
37.0
36.0
Brush worth INR16 free
36.3
20.0
37.5
50.0
31.7
51.3
63.3
123.8
45.7
100.0
28.6
37.0
56.0
45.0
55.0
55.0
40.0
35.0
36.0
36.0
19.0
32.4
125.0
125.0
125.0
106.7
200.0
187.5
42.9
90.0
45.0
50.0
Source: Company, MOSL
1 July 2013
2
Offer
HUL
Pepsodent
2 in 1 Germi check
2 in 1 Germi check
2 in 1 Germi check
Expert protection
Pro sensitive Relief and Repair
Gum Care
Expert protection sensitive
Germi check + magnets
Germi check + magnets
Deep Action
Deep Action
Deep Action
Fire Freeze
75
95
41
95 10 INR off
99 21 INR off on trial offer - MRP 120
137
80
10
37
84
135 17 INR off
44
44
40
70
108
72
38
60
12 INR brush free
Free Binaca brush
15 INR bush free
Buy 1 Get 1 Free
Close Up
Dabur
Red
Meswak
Babool
GSK
Paraodontax
Sensodyne
Red
Red
Red
Meswak
Babool
Babool Neem
Paraodontax
Paraodontax
Sensodyne
Sensodyne
Sensodyne Repair & Protect
Sensodyne Repair & Protect
50
100
50
160 45 INR brush free
80
150
75
90
45
50
Himalaya Himalaya Herbal
Complete Care
Sensitive
Active Fresh Gel
Sparkling White

Colgate Palmolive
Impact on Colgate / other players
We do not expect P&G’s entry into toothpastes to create material disruption for
the market leader, CLGT, given its wide product portfolio straddling multiple
benefits and price points, well entrenched brand equity (almost synonymous
with the category) and deeply penetrated distribution network.
It will, however, result in further stepping up of category ad-spends, in our view.
The category has seen significant activity in the last 24 months, especially in the
premium sensitive sub-category, where GSK has upped the ante and garnered
~25% share, similar to CLGT.
In the mid-90’s, when HUVR re-launched
Pepsodent,
CLGT’s ad-spends increased
significantly, denting its margins. A section of the street believes this can recur.
However, we do not see this happening. CLGT’s ad-spends and promotions as a
percentage of sales are already high v/s the mid-90’s and competitive. While we
expect ad-spends to increase, we do not see room for material upswing.
HUVR and DABUR are at risk of market share loss – toothpastes contribute 6-7% of
HUVR’s and 9-10% of DABUR’s revenues. However, given that P&G’s toothpaste
launch was in the pipeline for some time, competitors have been gearing up for
this, as evidenced by a spate of promotions and price-offs (for details, see
annexure).
CLGT’s gross and EBITDA margins have consistently
increased in the last 10 years (%)
CLGT’s ad-spends jumped significantly in the mid-90’s post
HUVR’s Pepsodent re-launch
Source: Company, MOSL
We do not foresee material erosion in CLGT’s market share due to P&G’s entry
into toothpastes. The entry of an MNC with deep pockets may expand the category
in the medium term, and being a market leader, CLGT could also benefit. Evidence
from Brazil corroborates this view to an extent; Colgate gained share despite
P&G’s entry into toothpastes in Brazil.
1 July 2013
3

Colgate Palmolive
P&G’s market share gain in Brazil did not come at the expense of Colgate (%)
Source: Industry; Colgate
Likelihood of a price war low
P&G has indulged in price wars in the past. In the first instance when this happened
(Laundry; 2003-04), its price premium v/s competition was significant. In the second
instance (Tide
Naturals;
2009-10), P&G was seeking space in mid-end laundry and
had launched a new brand.
P&G has not precipitated price wars in categories where its presence is miniscule
or when it has made a category debut (Skin Care –
Olay;
2007-08). Secondly, it has
fought price battles when it has already made some ground (Laundry).
While nothing rules out an internecine price battle to gain early market share, we
believe the probability of this is low owing to the recent change in P&G’s focus
towards profitability in India.
We envisage continuation of media aggression from P&G; it has spent top dollars
to promote
Oral B
– hiring Madhuri Dixit as brand ambassador, Smile India
movement, et al.
Performance of P&G in toothbrushes
Oral B
has been a good success story for P&G in toothbrushes, though at the cost
of margins.
…and revenue CAGR of 29% over FY07-12
P&G: Oral Care volume CAGR of 27%...
Source: Company, MOSL
1 July 2013
4

Colgate Palmolive
Market share gain for Oral B came at the expense of margins…
Oral Care’s contribution to Gillette topline
Source: Company, MOSL
Valuation and view
We are not too concerned about the impact of P&G’s entry into Oral Care on CLGT.
However, post the strong outperformance of the last three years, current valuations
factor in all the positives – strong balance sheet, 100%+ RoCE, ~80% payout, and
market leading position in a growing category.
We maintain our Neutral rating on CLGT, as we believe current valuations at 31.4x
FY14E and 26.7x FY15E EPS are expensive, given the context of moderation in
consumer spending (though CLGT has so far remained immune from any slowdown
in its core toothpaste volume growth), and leave little room for disappointments.
Annexure: CLGT’s Oral Care presence
CLGT’s exposure to Oral Care
Category
Oral Care
Sub-category
Toothpaste
Toothbrush
Toothpowder
Mouthwash
Revenue
contribution
75.7
10.7
8.7
1.9
Current category
size
INR50b
INR9b
INR4b
INR1.5b
Market
share (%)
54
39
45
27
Source: Company, MOSL
CLGT has gained market share in toothpastes Coverage is up 20% in two years
(%)
Rising penetration in toothpaste category
(%)
Source: Company, MOSL
1 July 2013
5

Colgate Palmolive
Toothpaste volume growth remained strong in FY13 (%)
Strong market share gains in toothpastes (%)
Source: Company, MOSL
CLGT’s competitive position has strengthened since FY11 (%)
Source: Company, MOSL
1 July 2013
6

Colgate Palmolive
Financials and Valuation
Income Statement
Y/E March
Net Sales
Change (%)
COGS
Gross Profit
Gross Margin (%)
Operating expenses
Other Operating Income
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Financial Other Income
Profit before Taxes
Change (%)
Margin (%)
Tax
Tax Rate (%)
Adjusted PAT
Change (%)
Margin (%)
Reported PAT
2011
22,206
13.2
8,721
13,485
60.7
8,980
729
5,234
4.4
22.8
343
31
339
5,199
7.2
23.4
1,174
22.6
4,026
-0.3
18.1
4,026
2012
26,239
18.2
10,502
15,736
60.0
10,645
694
5,785
10.5
21.5
393
15
507
5,884
13.2
22.4
1,419
24.1
4,465
10.9
17.0
4,465
2013
30,841
17.5
12,502
18,339
59.5
12,568
797
6,568
13.5
20.8
437
0
499
6,630
12.7
21.5
1,663
25.1
4,968
11.3
16.1
4,968
2014E
35,435
14.9
14,116
21,319
60.2
14,285
909
7,943
20.9
21.9
485
5
609
8,062
21.6
22.8
2,196
27.2
5,866
18.1
16.6
5,866
(INR Million)
2015E
41,026
15.8
16,289
24,738
60.3
16,471
970
9,238
16.3
22.0
597
5
668
9,304
15.4
22.7
2,419
26.0
6,885
17.4
16.8
6,885
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Deferred Liability
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
Curr. Assets, L&A
Inventory
Account Receivables
Cash & Bank
Others
Curr. Liab. and Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
1 July 2013
2011
136
3,705
3,841
1
-168
3,673
5,798
-3,248
2,550
123
387
7,044
1,537
430
3,956
1,122
6,432
4,213
526
1,693
612
3,673
2012
136
4,105
4,241
1
-175
4,067
6,524
-3,618
2,907
220
450
7,844
1,891
431
4,340
1,181
7,354
4,844
560
1,950
490
4,067
2013
136
5,043
5,179
1
-200
4,980
6,924
-4,034
2,890
300
400
9,716
2,248
503
5,721
1,245
8,326
5,635
587
2,104
1,390
4,980
2014E
136
6,121
6,257
1
-210
6,048
8,724
-4,520
4,205
200
500
10,505
2,542
582
6,069
1,311
9,362
6,276
625
2,461
1,143
6,048
(INR Million)
2015E
136
7,387
7,523
1
-210
7,314
10,524
-5,116
5,408
200
500
11,950
2,917
674
6,978
1,382
10,745
7,255
669
2,821
1,206
7,314
7

Colgate Palmolive
Financials and Valuation
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
29.6
32.1
28.2
22.0
73.8
2012
32.8
35.7
31.2
25.3
78.0
2013
36.5
39.7
38.1
26.3
70.0
2014E
43.1
46.7
46.0
30.2
70.0
2015E
50.6
55.0
55.3
35.4
70.0
37.0
34.0
5.8
27.1
35.5
1.9
31.4
29.0
5.0
22.3
29.4
2.2
26.7
24.6
4.3
19.1
24.5
2.6
114.1
114.3
109.4
110.1
108.4
108.5
102.6
102.7
99.9
100.0
7
7.0
6
7.7
6
7.2
6
6.6
6
6.2
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Int./Div. Received
Interest Paid
Direct Taxes Paid
(Incr)/Decr in WC
CF from Operations
(Incr)/Decr in FA
(Pur)/Sale of Investments
CF from Invest.
Change in Equity
(Incr)/Decr in Debt
Dividend Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2011
5,234
339
-33
-1,174
255
4,621
-514
-177
-691
43
-45
-3,489
42
-3,449
480
3,476
3,956
2012
5,785
507
-30
-1,419
506
5,349
-823
-63
-886
-45
1
-4,020
-15
-4,079
384
3,956
4,340
2013
6,568
499
-5
-1,663
481
5,880
-480
50
-430
138
0
-4,167
-40
-4,069
1,381
4,340
5,721
2014E
7,943
609
-5
-2,196
596
6,947
-1,700
-100
-1,800
0
0
-4,788
-10
-4,798
349
5,721
6,069
(INR Million)
2015E
9,238
668
-5
-2,419
846
8,328
-1,800
0
-1,800
0
0
-5,620
0
-5,620
908
6,069
6,978
1 July 2013
8

Colgate Palmolive
N O T E S
1 July 2013
9

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Colgate Palmolive
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