2QFY2013 Result Update | FMCG

November 1, 2012

Colgate
Performance Highlights
Quarterly results
(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
2QFY13 774 157 20.3 145 2QFY12 657 112 17.1 100 % yoy 17.7 39.7 319bp 45.5 1QFY13 736 142 19.4 117 % qoq 5.1 10.3 96bp 23.6

`1,278 -

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 17,381 (460) 0.3 1302/932 12,157 1 18,562 5,645 CLGT.BO CLGT@IN

For 2QFY2013, Colgate posted a healthy 45.5% yoy growth in its bottom-line to `145cr, with the volume growth coming in at a healthy ~10% yoy. The companys OPM rose by 319bp yoy to 20.3%. Key Highlights: During 2QFY2013, Colgate posted a 17.7% yoy growth in its net sales to `774cr. The companys volume market share (for January to September 2012) in the toothpaste category increased to 54.3% (vs 52.3% in January to September 2011). The companys volume market share in the toothbrush category rose to 39.0%. The OPM rose by 319bp yoy to 20.3%, due to lower advertisement expenditure (down 590bp yoy) and employee expenditure (down 219bp yoy) as a percentage of sales, even as other expenditure as a percentage of sales rose higher (by 316bp yoy). The net profit for the quarter rose by 45.5% yoy to `145cr, aided by a lower tax rate, which stood at 19.4% (vs 22.7% in 2QFY2012 and 28.0% in 1QFY2013) Outlook and valuation: During FY2012-14E, we expect Colgate to report a 15.2% CAGR in its top-line and ~13.8% CAGR in its earnings over FY2012-14E. At the current market price, the stock is trading at 30.1x FY2014E EPS. We see limited upside in the stock price from the current levels; hence, 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 6.0 21.2 21.9

Abs. (%) Sensex CLGT

3m 7.6 10.4

1yr 6.2 22.8

3yr 16.8 82.4

FY2011 2,286 16.5 403 (4.9) 22.5 29.6 43.2 45.3 113.4 135.8 7.4 33.0

FY2012 2,693 17.8 446 10.9 21.5 32.8 38.9 39.9 109.0 127.1 6.3 29.5

FY2013E 3,146 16.8 495 10.8 20.5 36.4 35.1 32.5 101.9 120.2 5.3 26.0

FY2014E 3,573 13.6 578 16.8 21.4 42.5 30.1 27.2 98.5 118.7 4.7 21.8

V Srinivasan
022 3935 7800 Ext: 6831

v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Colgate | 2QFY2013 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

2QFY13 774 324 41.9 54 7.0 89 11.5 150 19.3 617 157 20.3 0 11 34 180 0 180 23.3 35 19.4 145 19 14 10.7 145

2QFY12 657 264 40.1 61 9.2 114 17.4 106 16.2 545 112 17.1 1 11 28 129 0 129 19.6 29 22.7 100 15 14 7.3 100

% yoy 17.7 22.8 (10.3) (22.2) 40.8 13.2 39.7 (100.0) 0.3 20.7 39.6 39.6 19.5 45.5

1QFY13 736 300 40.7 62 8.5 84 11.4 148 20.1 594 142 19.4 0 11 31 163 0 163 22.2 46 28.0 117 16 14

% qoq 5.1 8.0 2.8 (13.0) (17.2) 6.2 1.0 1.2 (3.7) 3.9 10.3 #DIV/0! 0.9 7.3 10.4 10.4

1HFY2013 1,510 624 41.3 117 7.7 173 11.4 297 19.7 1,210 300 19.8 0 21 65 343 0 343 22.7 81

1HFY2012 1,268 510 40.2 110 8.7 135 10.7 283 22.3 1,039 229 18.1 1 19 58 267 0 267 21.1 67 25.0 200 16 14 14.7 200

% chg 19.0 22.2 5.8 27.5 5.1 16.5 30.7 (100.0) 9.0 10.7 28.4 28.4 20.6 31.0

(30.7) 23.6

23.5 263 17 14

45.5 45.5

8.6 117

23.6 23.6

19.3 263

31.0 31.0

Exhibit 2: 2QFY2013 Actual vs Angel estimates

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

Actual 774 157 20.3 145

Angel Est. 739 155 21.0 113

% Diff. 4.7 1.2 (69) bp 28.2

November 1, 2012

Colgate | 2QFY2013 Result Update

Top-line growth at 17.7% yoy driven by 10% volume growth

During 2QFY2013, Colgate posted a 17.7% yoy growth in its net sales to `774cr. In the tooth paste category, the company has gained market share from its rivals resulting in the companys volume market share going up to 54.3% for the period January to September 2012. The companys volume market share in the tooth brush category too rose to 39.0%. It continues its growth momentum in mouthwash category with a market share of 26.8%. Colgate continues to focus on innovation to drive its growth. It recently launched Colgate Total Advanced Whitening and Colgate Max Fresh Ice toothpaste. In the toothbrush category, the company had launched the Colgate 360 Battery Toothbrush in 1QFY2013. It had also recently launched Colgate Max Fresh toothbrush that has specially designed multi-height bristles and an advanced tongue freshener.

Exhibit 3: Top-line growth at 17.7% yoy

1,000 800 (` cr) 600 774 552 558 582 611 657 670 686 400 200 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 736 25.0 20.0 15.0 (yoy %) 10.0 5.0 -

Exhibit 4: Market share higher on yoy basis in 2QFY2013

60 55 50 (%) 45 40 35 30 25
2Q12 3Q12 4Q12

52.6

52.5

54

54.5

54.3

Toothpaste

Top-line (LHS)

yoygrowth (RHS)

1Q13

2Q13

Source: Company, Angel research

Source: Company, Angel research

OPM up 319bp yoy

OPM rose by 319bp yoy to 20.3%, due to lower advertisement expenditure (down 590bp yoy) and employee expenditure (down 219bp yoy) as a percentage of sales, even as other expenditure rose higher (up 316bp yoy). However, the gross margin fell by 73bp yoy due to increase in cost of raw materials.

Exhibit 5: OPM increases 319bp yoy

70.0 60.0 50.0 60.1 61.3 58.9 59.6 59.9 60.4 59.9 59.3 58.2

Exhibit 6: Net Profit higher by 45.5% yoy

170 150 130 110 (` cr) 117 90 131 100 114 100 100 116 70 50 30 10 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 100.0 80.0 60.0 20.0 (yoy %) 40.0 145 2Q13

40.0 (%) 30.0 20.0 10.0 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 20.3 13.4 21.4 19.1 17.1 19.3 22.3 19.4 20.3

66

(20.0) (40.0) (60.0)

OPM

Gross margin

PAT (LHS)

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

November 1, 2012

Colgate | 2QFY2013 Result Update

Net Profit up by 45.5% yoy

The net profit for the quarter rose by 45.5% yoy to `145cr, aided by a lower tax rate, which stood at 19.4% (vs 22.7% in 2QFY2012 and 28.0% in 1QFY2013).

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 HUL.

Outlook and valuation

During FY2012-14E, we expect Colgate to report a 15.2% CAGR in its top-line and ~13.8% CAGR in its earnings over FY2012-14E. At the current market share, the stock is trading at 30.1x FY2014E EPS. We see limited upside in the stock price from the current levels; hence, we maintain our Neutral rating on the stock.

Exhibit 7: Peer valuation

Company Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* TGBL Reco Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr) 37,176 5,713 17,381 21,659 24,478 12,645 116,159 218,329 13,147 45,414 9,867 CMP (`) 3,876 478 1,278 124 719 3,007 537 279 214 4,710 160 TP (`) 584 Upside (%) 22 P/E (x) FY13E 31.3 23.1 35.1 27.8 32.9 27.0 36.5 30.0 31.5 41.0 24.1 FY14E 26.5 18.8 30.1 23.8 27.2 22.8 31.5 25.6 25.3 33.7 20.4 EV/Sales (x) FY13E 3.2 0.9 5.3 3.5 4.2 3.6 4.4 7.1 2.7 5.2 1.3 FY14E 2.7 0.7 4.7 3.0 3.5 3.0 3.8 6.2 2.2 4.3 1.1 RoE (%) FY13E 37.4 43.1 101.9 43.2 25.5 36.3 70.9 35.4 31.4 71.2 8.6 FY14E 35.3 41.9 98.5 41.4 25.4 32.8 59.8 34.7 29.7 60.3 9.5 CAGR # Sales 17.0 17.4 15.2 15.9 22.1 16.8 15.5 17.2 18.6 16.5 9.7 EPS 19.2 27.4 13.8 18.9 28.3 24.9 19.7 17.7 27.6 15.0 16.6

Source: Company, Angel Research

November 1, 2012

Colgate | 2QFY2013 Result Update

Exhibit 8: One year forward PE

40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 (x)

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.

November 1, 2012

Colgate | 2QFY2013 Result Update

Profit & Loss statement

Y/E March (` cr) Net Sales Total operating income % chg Total Expenditure Cost of Materials Advertising Exp (Incl Promotion) 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) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 1,695 1,695 15.0 1,428 741 272 139 277 266 16.1 15.7 23 244 16.1 14.4 1 108 30.8 350 19.5 5 345 55 15.7 295 295 290 25.3 17.1 21.7 21.7 26.8 1,962 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 12.7 423 423 423 45.8 21.6 31.1 31.1 43.4 2,286 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 22.6 403 403 403 (4.9) 17.6 29.6 29.6 (4.9) 2,693 2,693 17.8 2,115 1,050 412 216 437 579 12.4 21.5 39 539 12.3 20.0 2 51 8.6 588 13.2 588 142 24.1 446 446 446 10.9 16.6 32.8 32.8 10.9 3,146 3,146 16.8 2,500 1,236 503 271 489 647 11.8 20.5 41 605 12.2 19.2 3 68 10.1 670 13.9 670 176 26.2 495 495 495 10.8 15.7 36.4 36.4 10.8 3,573 3,573 13.6 2,808 1,398 561 300 548 765 18.4 21.4 47 719 18.7 20.1 3 76 9.6 792 18.1 792 214 27.0 578 578 578 16.8 16.2 42.5 42.5 16.8

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

November 1, 2012

Colgate | 2QFY2013 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 advances Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers

FY2009 FY2010 14 203 216 5 (18) 203 384 251 133 5 41 38 538 251 193 94 551 (14) 203 14 313 326 5 (18) 313 494 288 206 6 41 21 591 348 123 120 552 39 313

FY2011 14 370 384 0 (17) 27 1 395 553 325 228 8 27 39 18 696 395 72 229 622 74 395

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

FY2013E FY2014E 14 521 535 (12) 30 1 554 699 400 299 14 27 47 40 965 537 120 308 839 126 554 14 625 639 (12) 30 1 657 777 447 330 16 27 47 40 1,091 622 120 350 894 197 657

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

November 1, 2012

Colgate | 2QFY2013 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

FY2009 345 23 35 (34) 55 (46) 268 9 34 43 0 0 238 (34) (204) 107 144 251

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

FY2013E 670 41 151 (50) 176 (2) 635 (58) (58) 395 (45) (350) 227 310 537

FY2014E 792 47 7 (57) 214 11 586 (79) (79) 474 (52) (422) 85 537 622

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

November 1, 2012

Colgate | 2QFY2013 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

FY2009 58.9 55.5 80.4 1.2 10.1 70.3 84.2 21.7 21.7 23.0 15.0 15.9 142.2 153.3 4.3 18 2 85 (57)

FY2010 41.1 37.7 53.3 1.6 8.7 43.9 54.4 31.1 31.1 33.9 20.0 24.0 150.3 156.1 4.5 21 2 79 (57)

FY2011 43.2 39.8 45.3 1.7 7.4 35.3 42.9 29.6 29.6 32.1 22.0 28.2 135.8 113.4 4.4 25 12 94 (51)

FY2012 38.9 35.8 39.9 2.0 6.3 31.6 37.5 32.8 32.8 35.7 25.0 32.0 127.1 109.0 4.7 30 12 79 (34)

FY2013E 35.1 32.4 32.5 2.0 5.3 27.8 30.4 36.4 36.4 39.4 25.0 39.3 120.2 101.9 4.9 24 11 88 (48)

FY2014E 30.1 27.8 27.2 2.3 4.7 23.3 25.4 42.5 42.5 45.9 30.0 47.0 118.7 98.5 4.8 24 11 83 (43)

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

November 1, 2012

Colgate | 2QFY2013 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%)

November 1, 2012

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