4QFY2013 Result Update | FMCG

May 29, 2013

Colgate Palmolive
Performance Highlights
Quarterly results
(` cr) Revenue EBITDA OPM (%) PAT 4QFY13 812 149 18.4 123 4QFY12 686 153 22.3 131 % yoy 18.3 (2.6) (397)bp (5.6) 3QFY13 763 129 16.9 111 % qoq 6.4 15.6 143bp 11.2

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 20,172 (438) 0.3 1580/1098 18,581 1 20,148 6,104 CLGT.BO CLGT@IN

`1,483 -

Source: Company, Angel Research

For 4QFY2013, Colgate Palmolive (Colgate) posted a 5.6% yoy de-growth in its bottom-line to `123cr, due to a 397bp yoy contraction in OPM on account of steep yoy increase in employee, advertisement and other expenditure. While 4QFY2013 OPM was disappointing, volume growth was impressive at 12% yoy. Key highlights: For 4QFY2013 Colgate Palmolive posted an in-line 18.3% yoy growth in net sales to `812cr, aided by higher volume, higher prices and superior product mix. While overall volume growth stood at 11%, volume growth in the tooth paste category stood at 11%. Market share in tooth paste category rose by 130bp yoy and stood at 55.4% during Jan-April 2013. The companys OPM stood at 18.4% down 397bp on yoy basis. OPM fell due to higher employee, advertising and other expenses as a % of sales. Bottom-line fell by 5.8% yoy to `123cr, impacted by steep fall in OPM. Outlook and valuation: We expect Colgate to report a 15.7% CAGR in its top-line and ~19.0% CAGR in its earnings over FY2013-15E. At the current market price, the stock is trading at 28.7x FY2015E EPS. We maintain our Neutral rating on the stock. Key financials
Y/E March (` cr) Net sales % chg Net profit (Adj.) % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 51.0 5.2 21.9 21.9

Abs. (%) Sensex CLGT

3m 6.8 16.3

1yr 22.6

3yr 19.5

22.0 102.3

FY2012 2,624 14.8 446 10.9 19.4 32.8 45.2 46.3 109.0 110.8 7.6 39.0

FY2013 3,084 17.5 497 11.3 18.7 36.5 40.6 41.2 107.5 111.5 6.4 34.1

FY2014E 3,588 16.4 601 20.9 20.5 44.2 33.6 32.7 108.6 119.7 5.5 26.7

FY2015E 4,130 15.1 704 17.1 20.9 51.7 28.7 23.8 96.2 107.7 4.7 22.4

V Srinivasan
022 3935 7800 Ext: 6831

v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Colgate | 4QFY2013 Result Update

Exhibit 1: Quarterly performance

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income Recurring PBT Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`) Adjusted PAT
Source: Company, Angel Research

4QFY13 812 322 39.7 70 8.6 82 10.1 189 23.3 663 149 18.4 0 11 32 170 0 170 20.9 46 27.3 123 15 14 9.1 123

4QFY12 686 275 40.1 52 7.6 58 8.5 148 21.6 533 153 22.3 0 10 30 173 0 173 25.2 42 24.3 131 19 14 9.6 131

% yoy 18.3 17.3 34.3 40.8 27.6 24.4 (2.6) 12.5 6.4 (1.8) (1.8) 10.1 (5.6)

3QFY13 763 304 39.9 63 8.3 100 13.1 166 21.8 634 129 16.9 0 11 33 150 0 150 19.7 39 26.1 111 15 14

% qoq 6.4 5.8 (0.6) 10.3 3.6 (17.8) (22.8) 13.5 6.7 4.6 15.6 (0.4) (2.4) 12.9 12.9

FY2013 3,084 1,250 40.5 249 8.1 355 11.5 653 21.2 2,507 577 18.7 0 44 130 663 0 663 21.5 166

FY2012 2,624 1,050 40.0 216 8.2 263 10.0 586 22.3 2,115 509 19.4 2 39 120 588 0 588 22.4 142 24.1 446 17 14 32.8 446

% chg 17.5 19.0 15.7 34.8 11.4 18.6 13.3

11.2 8.0 12.7 12.7 17.2 11.3

4.3 11.2

25.1 497 16 14

(5.6) (5.6)

8.2 111

11.2 11.2

36.5 497

11.3 11.3

Exhibit 2: 4QFY2013 Actual vs Angel estimates

(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

Actual 812 149 18.4 123

Angel Est. 809 140 17.3 130

% Diff. 0.4 6.4 103 (4.8)

May 29, 2013

Colgate | 4QFY2013 Result Update

Top-line growth at 18.3% yoy

During 4QFY2013, Colgate posted a 18.3% yoy growth in its net sales to `812cr. Volume growth stood at 12% yoy. In the tooth paste category, the company has gained market share from its rivals resulting in the companys volume market share going up 130bp on yoy basis to 55.4% for the period January to April 2013. The growth in market share was aided by healthy growth in flagship brands such as Colgate Dental Cream, Active salt, MaxFresh and Colgate Sensitive. The companys volume market share in the tooth brush category too has increased to 41.5% (37.7% in January to April 2012) during January-April 2013. Colgate continues to focus on innovation to drive its growth. The company has recently launched Colgate Visible White Toothpaste, the first of its kind oral care product in India that offers white teeth in just one week and is aimed at creating and growing the whitening segment in the toothpaste category. It also recently launched Colgate Pro Gum Health toothpaste to effectively work on gum problems. Recent launches also Colgate Sensitive Pro Relief Multi Protection tooth paste that provides superior sensitivity relief. In the toothbrush category, the company has launched Colgate 360 Battery Toothbrush that has a dual action brush head which provides 20X more cleaning action than a manual toothbrush. It has also launched Colgate Gum Comfort Toothbrush with soft curved bristles for gum comfort and effective cleaning of teeth.

Exhibit 3: Top-line growth at 18.3% yoy

900 800 700 600 (` cr) 500 400 300 582 611 657 670 686 756 200 100 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 774 763 812 20.0 (yoy %) 15.0 10.0 5.0 25.0

Exhibit 4: Volume market share (YTD) higher on yoy basis

60 55 50 (%) 45 40 35 30 25 4Q12 1Q13 Toothpaste 2Q13 3QFY13 4Q13 54.1 54.5 54.3 54.5 55.4

Top-line (LHS)

yoygrowth (RHS)

Source: Company, Angel research

Source: Company, Angel research

OPM down 397bp yoy

The companys OPM stood at 18.3% down 396bp on yoy basis. OPM fell due to higher employee, advertising and other expenses as a % of sales. Bottom-line fell by 5.8% yoy to `123cr, impacted by steep fall in OPM.

May 29, 2013

Colgate | 4QFY2013 Result Update

Exhibit 5: OPM down 457bp yoy

70.0 60.0 50.0 58.9 59.6 59.9 60.4 59.9 60.4 58.2 60.1 60.3

Exhibit 6: Net Profit down by 5.8% yoy

170 150 130 110 (` cr) 117 20.3 70 50 30 10 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 123 90 114 116 131 100 99 80.0 60.0 40.0 145 20.0 111 (20.0) (40.0) 4Q13 (yoy %)

(%)

40.0 30.0 20.0 10.0 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 21.4 19.1 17.1 19.0 22.3 21.5 16.9 18.3

OPM

Gross margin

PAT (LHS)

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Investment rationale
Continues to maintain market leadership: Colgate has continued to maintain its market leadership in all categories of oral care such as tooth paste, tooth brush and mouth wash despite intensive competitive pressure. It in fact has gained market share from its rivals over the last one year. Strong innovation capabilities: Colgate has continuously demonstrated its innovation capability through launch of new products. It has launched premium products such as Colgate Max Fresh toothbrush and Colgate 360 Battery toothbrush to counter aggressive product launches and higher ad spend by competitors.

Outlook and valuation

We expect Colgate to report a 15.7% CAGR in its top-line and ~19.0% CAGR in its earnings over FY2013-15E. At the current market price, the stock is trading at 28.7x FY2015E EPS. We maintain our Neutral rating on the stock.

May 29, 2013

Colgate | 4QFY2013 Result Update

Exhibit 7: Peer valuation

Company Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* TGBL Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr) 46,162 8,179 20,173 27,324 28,294 21,712 128,474 270,439 14,771 50,661 8,834 CMP (`) 4,813 684 1,483 157 831 5,163 594 342 229 5,254 143 TP (`) Upside (%) P/E (x) FY13E 34.0 29.6 33.6 29.2 33.1 42.2 34.8 30.4 31.6 41.2 18.1 FY14E 29.6 24.5 28.7 25.0 28.0 34.7 32.3 25.7 26.4 34.1 16.4 EV/Sales (x) FY13E 3.6 1.2 5.5 3.7 3.8 5.5 4.2 7.5 2.8 5.3 1.0 FY14E 3.0 1.0 4.7 3.2 3.2 4.6 3.7 6.3 2.4 4.4 0.9 RoE (%) FY13E 35.4 38.3 108.6 41.5 24.8 34.1 113.4 36.1 21.4 57.7 9.5 FY14E 32.2 36.4 96.2 40.1 24.2 33.7 87.0 34.9 21.0 50.7 9.8 CAGR # Sales 15.4 16.1 15.7 16.5 18.8 17.6 14.7 16.2 14.8 14.9 10.0 EPS 18.4 20.7 19.0 19.5 18.9 19.6 11.7 19.2 24.0 16.2 13.0

Source: Company, Angel Research

Exhibit 8: One year forward PE

50.0 45.0 40.0 35.0 30.0 (x) 25.0 20.0 15.0 10.0 5.0 Nov-08 Nov-09 Nov-10 Nov-11 May-09 May-10 May-11 May-12 Nov-12 May-13 Jun-08 Source: Company

Company background
Colgate-Palmolive, a 51% subsidiary of Colgate Palmolive Company, USA, is a leading FMCG player in the Indian oral care market. The oral care segment contributes ~96% to the company's revenue, with the personal care and household care segment contributing the balance. The company, under the Palmolive brand name, is present in the personal care segment.

May 29, 2013

Colgate | 4QFY2013 Result Update

Profit & Loss statement

Y/E March (` cr) Total operating income % chg Total Expenditure Cost of Materials Advertising Exp (Incl Prom.) Personnel Others EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra. Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 1,962 15.8 1,537 777 299 159 302 425 59.7 21.7 38 388 59.3 19.8 2 98 20.3 485 38.4 485 62 12.7 423 423 45.8 21.6 31.1 31.1 43.4 2,286 16.5 1,772 872 349 193 357 515 21.0 22.5 34 480 23.8 21.0 2 41 7.9 520 7.3 520 117 22.6 403 403 (4.9) 17.6 29.6 29.6 (4.9) 2,693 17.8 2,115 1,050 412 216 437 579 12.4 21.5 39 539 12.3 20.0 2 120 18.3 658 26.5 658 142 21.6 516 516 28.1 19.2 32.8 32.8 10.9 3,120 15.8 2,507 1,250 505 249 503 613 6.0 19.6 44 569 5.6 18.2 130 18.6 699 6.3 699 166 23.8 533 533 3.3 17.1 36.5 36.5 11.3 3,588 15.0 2,855 1,428 574 301 551 734 19.7 20.5 49 685 20.3 19.1 133 16.3 818 16.9 818 217 26.5 601 601 12.7 16.7 44.2 44.2 20.9 4,130 15.1 3,266 1,625 661 347 634 864 17.7 20.9 54 810 18.3 19.6 167 17.1 977 19.5 977 274 28.0 704 704 17.1 17.0 51.7 51.7 17.1

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

May 29, 2013

Colgate | 4QFY2013 Result Update

Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Long term Provisions Other Long term liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers

FY2010 14 313 326 5 (18)

FY2011 14 370 384 0 (17) 27 1

FY2012 14 422 435 (12) 30 1 454 586 359 227 69 27 47 23 724 310 109 305 663 60 454

FY2013 14 476 490 (22) 35 1 503 745 402 343 13 27 47 70 784 429 89 267 781 3 503

FY2014E 14 603 617 (12) 30 1 636 820 452 369 13 27 47 40 976 536 89 351 836 140 636

FY2015E 14 833 846 (12) 30 1 865 895 505 390 13 27 47 40 1,280 786 89 404 931 348 865

313 494 288 206 6 41 21 591 348 123 120 552 39 313

395 553 325 228 8 27 39 18 696 395 72 229 622 74 395

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

May 29, 2013

Colgate | 4QFY2013 Result Update

Cash Flow Statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers

FY2010 485 38 (23) (24) 62 70 484 (111) 17 (93) 0 (0) 318 (24) (294) 96 251 348

FY2011 520 34 (7) (29) 117 36 437 (47) (18) (65) (5) 349 (29) (325) 48 348 395

FY2012 588 39 (81) (40) 142 8 373 (95) (8) (103) (0) 395 (40) (355) (85) 395 310

FY2013 663 44 145 (71) 166 (17) 598 (103) (103) 442 (66) (376) 119 310 429

FY2014E 818 49 (52) (66) 217 63 596 (75) (75) 474 (61) (414) 107 429 536

FY2015E 977 54 19 (91) 274 28 713 (75) (75) 474 (86) (388) 250 536 786

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

May 29, 2013

Colgate | 4QFY2013 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel ROIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days)
previous year numbers

FY2010 47.7 43.8 61.9 1.3 10.1 51.1 63.3 31.1 31.1 33.9 20.0 24.0 150.3 156.1 4.5 21 2 79 (57)

FY2011 50.1 46.2 52.5 1.5 8.6 41.1 50.0 29.6 29.6 32.1 22.0 28.2 135.8 113.4 4.4 25 12 94 (51)

FY2012 45.2 41.5 46.3 1.7 7.6 42.2 43.7 32.8 32.8 35.7 25.0 32.0 110.8 109.0 4.6 30 12 82 (35)

FY2013 40.6 37.3 41.2 1.9 6.4 36.9 39.1 36.5 36.5 39.8 28.0 36.0 111.5 107.5 4.9 24 11 85 (50)

FY2014E 33.6 31.0 32.7 2.0 5.5 28.6 30.8 44.2 44.2 47.8 30.0 45.4 120.3 108.6 4.9 24 11 76 (40)

FY2015E 28.7 26.6 23.8 2.0 4.7 23.9 22.4 51.7 51.7 55.7 30.0 62.2 108.0 96.2 4.9 24 11 73 (39)

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

May 29, 2013

Colgate | 4QFY2013 Result Update

Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Colgate No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 29, 2013

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