30 July 2013
1QFY14 Results Update | Sector:
Consumer
Colgate
BSE SENSEX
19,593
Bloomberg
S&P CNX
5,832
CLGT IN
CMP: INR1,408
TP: INR1,400
Neutral
Equity Shares (m)
136.0
M.Cap. (INR b) / (USD
191.5/3.2
b)
52-Week Range (INR) 1,580/1,116
1, 6, 12 Rel. Per (%)
0/1/6
Financials & Valuation (INR b)
Y/E MAR
2013 2014 2015E
Net Sales
30.8
35.4
41.0
EBITDA
Adj PAT
Adj.EPS INR
Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
6.6
5.0
36.5
11.3
38.1
108.4
108.5
39.4
37.8
7.9
5.9
43.1
18.1
46.0
102.6
102.7
33.4
31.3
9.2
6.9
50.6
17.4
55.3
99.9
100.0
28.4
26.0
1QFY14 performance mixed:
Colgate Palmolive (CLGT) posted mixed
performance for 1QFY14. While volume growth was strong and market share
increased, profitability was weak. Sales grew 14.7% to INR8.45b (our estimate:
INR8.54b), EBITDA margin declined 230bp to 19.2% (our estimate: 21%) and
adjusted PAT grew 10.5% to INR1.29b (our estimate: INR1.36b).
Market share up:
Toothpaste volumes grew 11% (on a base of 11% growth in
1QFY13 and 14% in 1QFY12). CLGT’s market share in Toothpastes increased 120bp
YoY to 55.9% for the period January - June 2013. Overall volume growth was 9%.
EBITDA margin contracts:
Gross margin expanded 110bp to 61.1% (our estimate:
60%). However, 70bp increase in ad spends and 400bp rise in other expenditure
dragged EBITDA margin by 230bp to 19.2% (our estimate: 21%). EBITDA remained
flat YoY at INR1.65b (our estimate: INR1.84b). Financial other income grew 53%.
Adjusted PAT grew 10.5% to INR1.29b (our estimate: INR1.36b). Adjusting for
exceptional items net of tax, core tax rate was 24%, down 400bp.
Focusing on market share:
After P&G’s entry into Toothpastes, we note a
significant step-up in advertising and promotion activity (alternate day front page
print advertising, aggressive TV slots, consumer offers, saver packs, etc). We
believe CLGT is prioritizing market share and volume gains over profitability, and
rightly so. We like the aggression with which it is fighting for market share,
despite the short term impact on its margins and profitability.
Maintain Neutral:
Notwithstanding the miss on margins, we believe CLGT’s
success in defending market share will have an overbearing impact on valuations.
Contrary to the street, we do not expect significant impact of P&G’s entry on
CLGT’s market share. Maintain
Neutral
with a target price of INR1,400 (28x FY15E
EPS). The stock trades at 33.4x FY14E and 28.4x FY15E EPS. Slowdown in rural
consumption and internecine price war in the Toothpaste category are key risks.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Investors are advised to refer through disclosures made at the end of the Research Report.

Colgate
Sales up 14.7%; 11% Toothpaste volume growth
Net sales grew 14.7% to INR8.45b (est INR8.54b) led by toothpaste volume
growth of 11%. Overall volume growth was 9%.
Gross margins increased 140bp YoY while increase in ad spends (up 70bp) and
400bp increase in other expenditure (includes promotion expenses) dragged
EBITDA margins down by 230bp to 19.2% (est 21%). Expect ad-spend intensity
to remain high. After P&G’s launch in July’13, we note further step up in adpro
aggression by Colgate, GSK, HUL, P&G and Dabur in that order.
EBIDTA remained flat at INR1.65b (est INR1.84b)
Financial other income grew 53%. Thus PBT growth stood at 4.6% to INR1.71bn
(est INR 1.86bn).
Adj PAT growth came in at 10.5% to INR 1.29b (est INR 1.36b).
Exceptional items, net of tax stood at INR555mn (slump sale of Global Shared
Services Organization to Colgate Global Business Services Private Limited, a
100% subsidiary of Colgate-Palmolive Company). After adjusting the exceptional
net of tax, core tax rate came in at 24% down 400bps YoY.
Reported PAT was up 57.7% YoY to INR1.85bn.
Gross margins expands 140bp YoY
EBITDA margins contract 230bp YoY
Source: Company, MOSL
Source: Company, MOSL
Toothpaste volume growth at 11%; market share gains in Toothpaste and
Toothbrush
Toothpastes volume grew 11% as CDC, Active Salt, Max Fresh and Total
performed well. Colgate has launched series of innovative products in FY13 to
cement its positioning ahead of P&G’s Toothpaste category entry. During the
quarter, it launched Colgate Visible White.
Underlying premiumisation trend continues and is reflected in 5.7% growth
contribution coming from pricing and richer mix to the topline.
Colgate continued to gain market shares in both Toothpaste and Toothbrush
segment despite its already well entrenched leadership position. CLGT gained
120bp YoY market share at 55.9% for the period Jan- Jun 2013 (50bps over Apr-
Jun’13). Toothbrush reported market share of 41.4% for the same period (up
270bp YoY and flat over Apr-Jun’13).
We believe Colgate is prioritizing market share and volume gains vs. profitability
and rightly so. We like the aggression with which the incumbent is fighting for
30 July 2013
2

Colgate
every bps of share in the marketplace despite the short term impact on its
margins and profitability.
Toothpaste volume growth back in double digits (%)
Source: Company, MOSL
Gross margins expands 140bp YoY
Overall Volume growth (%)
13
11
13
13
13
12
12
12
12
11
12
10
6
9
Source: Company, MOSL
Share gains continue in Toothpaste (%)
Source: Company, MOSL
Valuation and view
Colgate has not seen any slowdown yet in its core category, despite the
moderation witnessed by other consumer names in HPC space. This is not
surprising to us given the unblinking defense of volumes and market shares it
has undertaken in the marketplace.
We highlight the risk of further deterioration in margins/profitability as
Colgate’s trade and consumer promo/advertising has seen a significant step up
post P&G’s Oral B launch in July.
3
30 July 2013

Colgate
Contrary to street, we don’t expect significant impact of P&G’s entry on
Colgate’s market share prospects. We believe P&G’s entry will help accelerate
the market growth. Maintain
Neutral
with TP of INR1400. Stock trades at 33.4x
and 28.4x FY14 and FY15 EPS.
Slowdown in rural consumption and internecine price war in Toothpaste is a key
risk.
30 July 2013
4

Colgate
Colgate: an investment profile
Company description
Colgate-Palmolive India (CLGT) is the market leader in
the toothpaste segment, with a share of ~54%. Oral
Care is one of the most under-penetrated segments of
the FMCG market, with ~83% of sales from toothpastes.
CLGT has presence in toothbrushes and mouthwash,
and Personal Care products like bodywash.
Recent developments

P&G
recently entered the Toothpaste category with
the launch of its Oral B Toothpaste. Colgate has
launched Visible White toothpaste in the Whitening
segment.
Valuation and view
Key investment arguments
CLGT maintains its leadership position in the Oral
Care market despite increasing competition.
Consistent volume growth and market share gains in
toothpastes led by increasing conversions from
toothpowder and higher penetration.
Key investment risks
Heightened competitive intensity from Hindustan
Unilever and Dabur.
Slowdown in toothpaste volume growth, as the
company is still a single segment company.
Contrary to street, we don’t expect significant
impact of P&G’s entry on Colgate’s market share
prospects. We believe P&G’s entry will help
accelerate the market growth. Maintain
Neutral
with TP of INR1400. Stock trades at 33.4x and 28.4x
FY14 and FY15 EPS.
Slowdown in rural consumption and internecine
price war in Toothpaste is a key risk.
Sector view
We have a cautious view on the sector on back of
pressure on consumer wallets.
Companies with low competitive pressures and
broad product portfolios will be able to better
withstand any slowdown in a particular segment.
Longer-term prospects bright, given rising income
levels and low penetration.
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Colgate
33.4
28.4
23.8
20.4
5.3
4.6
31.3
26.0
HLL
35.1
32.0
25.7
22.1
4.1
3.6
21.6
18.4
Nestle
40.8
29.3
24.8
20.9
5.5
4.6
25.0
18.9
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
43.1
50.6
Consensus
Forecast
41.3
47.5
Variation
(%)
4.6
6.6
Target price and recommendation
Current
Price (INR)
1,408
Target
Price (INR)
1,400
Upside
(%)
-
Reco.
Neutral
Shareholding pattern (%)
June-13
Promoter
Domestic Inst
Foreign
Others
51.1
5.6
21.6
21.8
Mar-12
51.1
5.2
21.9
21.9
June-12
51.0
6.0
21.2
21.9
Stock performance (1-year)
30 July 2013
5

Colgate
Financials and valuation
30 July 2013
6

Colgate
NOTES
30 July 2013
7

Colgate
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COLGATE PALMOLIVE (INDIA)
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30 July 2013
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