KARVYiIIl ‘Colgate Palmolive (India) 2, Strong Pricing Power to Protect Profitability Colgate ~ being a leader in the oral care segment — enjoys robust pricing power to maintain its EBITDA margin, going forward, It is observed that the Company has consistently been expanding its EBITDA margin by means of successive hike and foray into premium segment. In the last three year, its margins were >22% vis-a-vis 17-18% range previously. Exhibit Colgate maintaining EBITDA margin at -20% in Exhibit 8: Colgate consistently clock ~12% volume in the the past several quarters owing to strong, past several quarters despite it took price hike pricing power of its brands in some of the quarters 200 200 250 10 200 100 150 so 100 . Sese2geeeeennagags gegeeee22e2nnna 8s ESEPP2STEEPETLTE 82222 ET RPE E2 728 SSASASLEASEEEREEE oo EGRESS EEERLE EGER S me TDA Megat) avg DAN sVotume growth) ePrice grow) Source: Company, Karey Institutional Reseerde Sources Company, Karey Institutional Research Rise in Gross Margin to Offset Higher Promotional Spending: Colgate’s promotional expenditure has been lower on in the last three quarters to protect the EBITDA margin. We believe that Colgate has to invest high on A&P going forward to face the stiff competition, which would set off gross level profitability — through better price growth and higher contribution from premium segment ~ to some extent and ‘would cap the EBITDA margin at -21-22% in FY12-15E. Sross margin in the past two quarters are slightly lower than average hibit 10: A&P spending (% of sales) in the last three quarters are lower than the average spend PRESEEESEREDE — EREGPERED PRESSE ‘Source: Company, Karey listtutional Research ‘Source: Company, Kargy Istittional Research nKARV Y ||| EEE odtber38,2012 Colgate Palmolive (India) 3. New Launches Suggest Better Prospects Colgate's consistent focus on new launches provides us the better business visibility, going forward. It is observed that most of these launches are in the premium segment, wherein the competition is also low and profitability is high, Colgate has aggressively launched toothpaste in the “Sensitive” segment wherein it already had toothbrush also. Meanwhile, we are also bullish on Colgate’s incremental focus on Mouthwash & Body-wash category. Exhibit 11: Launches in the past one year Teoh Teotipacte Mostar Bey Wath Clete Supe Tosti SARSSERREPOREES cs irate Anon Bly Wa Calgte 340 deesonc ower Cate PaxComplteCae——_—ClgateFlxSenstve Palmolive Thema Sp Boy Tooth Mouths Mowe wan Colgate Zig-Zag Anti-Germ Toothbrush Colgate Barbie Toothbrush Colgate Spiderman Toothbrush Colgate 340 degree Surround Toothbrush Colgate 360 Sensitive Pro-relief Toothbrush Colgate Max Fresh Toothbrush ‘Sources Company, Karay Institutional Research Exhibit 12: Mouthwash Price Comparison (Rs/10ml) 75 60 45 30 15 Pepsodent ire Cosine) Liserne (Cooinin) Lotene Org!) Lsteine Orga!) Listerine (Coolmint) Colgate Pa (Senate) Copter heh in) Literne Grstbus) Colgate ax Pepper Mint) Cogeco Fret xin) Linen Frestburs) | Colgate ax Pepper Mint) Colgate Fret xin) —o«- ‘Colgate Plax (Pepper Mint) ‘Sours: Karey national Research Our View: Thrust on new launches in less-competitive and high-margin premium segment with incremental focus on niche on other categories will drive sales growth of the Company. 2STOCK BROKING KARVYiIIl Exhibit 13: Key Assumptions Key Assumptions ryt Net Sales Growth () 132 ‘Toothpaste Volume Growth (%) 120 Gross Profit Margin ® as ‘Advertisement Expense (% of sales) 99 EBITDA Margin % 25 fective Tax Rate (76) 26 ‘Sources Company, Karvy institutional Research WR 182 18 10 98 as 41 (October 18,2012 Colgate Palmolive (India) FYE 208 120 ean 105 221 260 FYE A 120 620 105 220 250 FYISE 160 10 en no a5 250 %