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BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY
Equity Research Report On
Colgate Palmolive India Limited
For Institutional Clients
Analyst:
ANKIT KHAITAN
akhaitan@hemonline.com

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BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY
Colgate Palmolive India Limited th
14 April 2009 BUY
th
Market Cap: Price as of 13 April: 52 Week Range: Beta: Industry: Target Price:
6205.35 Crore 456.30 480.00 / 341.00 0.51 FMCG 570.00
Outstanding Shares: Book Value Per Share: Face Value Per Share: BSE Code: NSE Code: Upside:
13.59 Crore 12.61 1.00 500830 COLPAL 114.00
COLGATE BUSINESS DESCRIPTION
COLGATE PALMOLIVE INDIA LIMITED IS EN-
GAGED IN ORAL CARE, PERSONAL CARE AND
HOUSEHOLD BUSINESS. THE COMPANY HAS
PRESENCE IN INDIAN ORAL CARE MARKET FOR
MORE THAN 70 YEARS AND THE ORAL CARE
SEGMENT ENJOY STRONG BRAND EQUITY FOR
PRODUCTS LIKE TOOTHPASTE, TOOTHPOW-
DERS AND TOOTHBRUSHES UNDER THE BRAND
‘COLGATE’ AND PERSONAL CARE PRODUCTS
UNDER THE BRAND ‘PALMOLIVE’.
STOCK PERFORMANCE
1m 12m
COLGATE 6.28% 14.86%
SENSEX 25.25% -30.62%
GROWTH (%) Recommendation
With inflation at the lowest level, raw material prices cooling off and
Last Qtr. Last Yr. 3 Yr. CAGR excise duty cut has help FMCG companies to maintain its margin. We
REVENUE 1.25% 13.76% 15.05%
are very positive on the long term business prospects of the company
PROFIT 22.43% 58.87% 27.99%
and its financial performance.
EPS ANALYSIS
At Current Market Price of INR 456.30 and with FY08E and FY09E
EPS of INR 20.50 and 23.10, the stock is trading at a PE of 22.2x and
19.7x respectively. We reiterate “BUY” on the stock with target price
of INR 570.00 with a medium term investment horizon.
Highlights/Recent Updates
Prices rise in some products by 4 per cent
Colgate Palmolive India Limited, a leader in the tooth paste segment,
has increased the prices of some its product by around 4 per cent,
where as other consumer goods makers such as Hindustan Unilever
Limited and Procter and Gamble are cutting prices of their products.
DIVIDEND ANALYSIS
The company announced second interim dividend
Colgate Palmolive India Limited has announced a second interim divi-
dend for the FY 2008-09 of INR 6 per share on share of face value
INR 1. This dividend is in addition to the first interim dividend declared
in December 2008 of INR 9 per share.
Reduction of Share Capital
Colgate Palmolive India Limited has reduce the capital of the company
by reducing the par value of shares from INR 10 to INR 1 though the
number of shares will remain unchanged ~13.60 crore. The Share
capital was reduced from INR 136 crore to INR 13.60 crore paying
back INR 9 per share to each shareholder. This has enhanced the
profitability ratio of the company.
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INDUSTRY SNAPSHOT
India is one of the fastest growing economies in the world. While we
are moving towards becoming a services-led economy but still agricul-
ture contributes around 17 per cent of the total GDP and employs 60
per cent of the population.
85,000 crore Indian FMCG market is one of
the important sector and has registered a India's FMCG Industry is the fourth largest sector in the economy and
robust growth rate. creates employment for more than three million people in downstream
activities. It is one of the most important sectors for each and every
economy. It plays a vital role being a necessity and inelastic product
which touches every life in one or the other aspect.
Its principal constituents are Household Care, Personal Care and Food
& Beverages. The total FMCG market is in excess of INR 85,000
Crore. It is currently growing at double digit growth rate and is ex-
pected to maintain a high growth rate.
FMCG Industry is characterized by a well established distribution net-
work, low penetration levels, low operating cost, lower per capita con-
sumption and intense competition between the organized and unor-
ganized segments.
The Indian FMCG industry is known for the presence of global players
through their subsidiaries like Hindustan Unilever Limited, Procter &
Size of Indian Oral care industry is around Gamble, Nestle, Colgate Palmolive, etc. This ensures new and en-
INR 4,000 crore. hanced product launches in the Indian market from the parent's portfo-
lio. The company leverage the benefits by known brands clubbed with
easily availability of key raw materials, cheap labour gives it a competi-
tive advantage.
Oral Care contributes around 5 per cent of the total FGCG market in
India. It includes toothpaste, toothpowder and toothbrush as it major
constituent. Oral care segment is among the few sectors which still
have lot of growth potential. It has registered a double digit growth rate
over the past few years.
Even the markets for advanced oral products like mouth wash, dental
floss and teeth whitening products are at it nascent stage hence will
The wholesale price index (WPI) after hitting result in higher growth rate.
a high of 12.63 per cent in September quar-
ter has fell to 0.26 per cent for the week There is a huge growth potential for all the FMCG companies as the
th
ended 28 March 2009. per capita consumption of almost all products in the country is
amongst the lowest in the world. Federation of Indian Chambers of
Commerce and Industry (FICCI) predicted that the Indian FMCG in-
dustry sales could grow at a double digit growth rate in the near future.
According to CRISIL anticipation, FMCG sector could touch around
INR 140,000 Crore by 2015.
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COMPANY OVERVIEW
ORAL CARE - A REAL REASON TO SMILE
Colgate Palmolive India Limited, a 51 per cent subsidiary of Colgate
Palmolive U.S., is engaged in oral care and personal care business.
Colgate Palmolive India Limited has been present in Indian oral care
market for more than 70 years and the company oral care brands en-
joy strong brand equity in the market. The company offer wide range of
proven oral care products like toothpaste, toothpowders and
toothbrushes under the brand ‘Colgate’. The Company also provides a
Colgate has been ranked as India's Most range of personal care products under the brand 'Palmolive'.
Trusted Brand across all categories for four
consecutive years in 2003 to 2007 by Brand The company was incorporated in the year 1937 as a private limited
Equity ORG-MARG AC Nielsen Survey. company. A distribution set up was also developed on India basis with
warehouse facilities in Mumbai, Chennai and Calcutta.
In the year 1988, the company got a license for producing 24,000 ton
per annum of fatty acids. It also registered with DGTD for production of
30,000 ton of toilet soap per annum.
In 1991, the company launched new Colgate Gel Toothpaste, Palmol-
ive Extra Care and new Palmolive soap and re-launched a high quality
Colgate Plus and other toothbrushes. In 1996, the company launched
Colgate fresh stripe toothpaste and Palmolive naturals soap in per-
The company has set up a well-structured sonal care products segments, Keratin Treatment Shampoo and Pal-
distribution network across the country. It molive optima in Hair care segment during the year.
has also set up a special cold chain for
product distribution in select retail outlets. Axion dishwashing paste was launched in Maharashtra. The product
received a good response from the market. Even the company estab-
lished a modern facility at Aurangabad to manufacture Dicalcium
phosphate, which is a key ingredient for toothpaste. The company also
launched “Colgate Double Protection”, “Colgate Total” and “Colgate
Sensation”.
In 2000, the company introduced two new variants in soap range. The
company relaunched Colgate Gel as “Colgate Fresh Energy Gel”.
Then the company launched Shaving Gel and Foam in response to
growing consumer interest in skin conditioning benefits.
Colgate has re-launched its Cibaca toothpaste as All New Cibaca Top.
The company has been continuously paying The company even launched toothbrush. The company launched new
dividends to its shareholders along with Zig Zag toothbrush and Colgate Navigator toothbrush. The company
continuous growth. commands a major share in toothbrush market.
The company has three manufacturing facilities. They are situated at
Baddi, Aurangabad and Nepal. Most of the toothbrush requirement is
outsourced by the company and toothpaste is being manufactured at
the Baddi plant whereas the toothpowder at the other two plants.
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BUSINESS SEGMENT
The company broad product segment includes Oral Care, Personal
Care and Household Care. Further the Oral Care portfolio includes
The company broad product segment in- Toothpaste & toothpowder and toothbrush.
cludes
Oral Care Oral Care
Personal Care The size of Indian Oral care industry is expected at around INR 4,000
Household Care crore, where it is segmented into toothpaste 60 per cent; toothpowder
23 per cent and toothbrushes 17 per cent. In oral care market, espe-
Further the Oral Care portfolio includes cially toothpastes, remains under penetrated in India with penetration
Toothpaste level just around 50 per cent. This industry is very competitive for both
Toothpowder organized and smaller regional players.
Toothbrush
Toothpaste/toothpowder Segment
Colgate Palmolive India Limited is a market leader in toothpaste seg-
ment. It has a lion market share of more than 48 per cent whereas
Hindustan Unilever Limited (HUL) stands at around 30 per cent. The
other market players are Dabur, Ajanta and Amar Remedies who are
primarily in the lower segment. The lower segment accounts for
around one-fifth of the total market. Toothpaste market is dominated
by two players - Colgate & HUL where as in toothpowders market, it is
Per capita consumption of toothpaste in In- dominated by Colgate and Dabur.
dia is among the lowest globally.
The company commands a key position in premium segment and has
few competitors, whereas in the low end segment, there are many
regional players apart from some big players.
Toothbrush Segment
Colgate is market leader in toothbrush market also which stands at
around 37 per cent followed by HUL which stand at around 23 per
cent. The toothbrush segment is valued at around INR 670 crore. This
segment contributes around 15 per cent of the Company’s total reve-
nue. The Company has brands like Colgate Zig Zag, Colgate 360 de-
gree and Colgate Cibaca top, etc under its toothbrush portfolio.
The company has captured a market share from 31 per cent to 37 per
cent in just 3 years. Toothbrush segment has potential for growth and
the company expects to capture more of the market share in the com-
ing years.
Penetration level of toothpastes stands Personal Care
around 55 per cent in India, of which around The personal care segment contributes more than 6 per cent of the
75 per cent is in urban areas while around 40 company revenue. The product offered by the company includes
per cert is in rural areas. Shower gels, Liquid hand soaps, Shaving creams and Cold creams
under its personal care portfolio. Shower gel and Shaving cream of
Colgate has a market share of 36 per cent and 11 per cent respec-
tively.
Household Care
The household care segment contributes just around 2-3 per cent to
the company revenue. The product offer by the company is Axion,
used for dish washing. The product has expected to continue a sus-
tainable growth rate of 6 - 8 per cent.
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SWOT ANALYSIS
Strength
Parent support
Colgate Palmolive India Limited has a strong support from its parent
Parent support - Leveraging the benefits company, which is a world leader in oral care company, with a pres-
from the parent company ence in almost every country. The company has access to the parent’s
hugely successful global folio of products and brands.
Market Leader in some of the Key Products
Colgate Palmolive India Limited is a market leader in oral care market
Market Leader in oral care market having existence of more than 70 years. The company commands a
market share of around 50 per cent in oral care market.
Backward Integration
Colgate Palmolive India Limited has entered into backward integration
Backward Integration - A world-class facility also. The company has set up a world-class facility for manufacture of
to manufacture Di-Calcium Phosphate, a key Di-calcium Phosphate, a key ingredient in toothpaste. The manufactur-
ingredient in toothpaste ing facility has yield significant cost savings for the company and also
acts as a cushion for the company against the price rise in raw mate-
rial prices.
Wide market coverage
The company has one of the widest market coverage in urban as well
Wide market coverage - one of the widest
market coverage as in rural market. For future growth, the company needs to focus
more towards rural area.
Weakness
Concentration risk over single category
The company has high reliance on a single category, Oral Care, which
Concentration risk as single category con-
accounts for more than 90 per cent of the company revenue and profit.
tribute more than 90 per cent of the com-
The other two categories, Personal care and household care, contrib-
pany revenue and profit
ute less than 10 per cent to the company revenue.
Opportunity
Low Penetration Level
There is low penetration level for oral care in rural market. Most the
Low Penetration Level for oral care in rural user in rural market use traditional products like neem twigs, salt or
market other herbal ingredients. Hence there are still lots of untapped poten-
tial in rural market.
Tax Benefits
The company has reported a decrease in tax portion, which is mainly
Tax Benefits- Baddi plant enjoys excise and due a facility in the tax free zone of Baddi. This plant enjoys excise
income-tax exemption. and income-tax exemption.
Threats
Competition in Low end segment
High Competition in Low end segment The company has few competitors in premium segment, but many
regional players apart from some big players in low segment products.
The competition in low segment is high.
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FINANCIALS
A growth rate in revenue stands at ~13 per
cent where as for profit it stands at ~58 per Annual Result
cent. The company has reported a high
growth in margins. The company has registered a robust growth rate over the past few
years. The company has recently reported total income of INR
1473.85 crore which was registered a growth of more than 13 per cent
over the last year which stands at INR 1295.62 crore.
The company has registered a continuous and a high growth in the
PBITDA and PAT margin. The Company has posted a net profit of INR
235.76 crore for the year ended March 31, 2008 as compared to INR
148.40 crore for the last year to register a growth of more than 58 per
cent.
Quarterly Result
The company margins have increase in the
latest quarter, mainly on account of de-
The Company has registered a robust growth in PBITDA and PAT
crease in raw material prices clubbed with
margin in the recent quarter. The company has registered a decline in
different initiative taken by the company.
margin in September quarter, which was mainly due increase in raw
material prices, high spending on advertisement & sales promotion
and other expenses.
The company has reported a huge growth in margins. The company
has reported a decrease in tax portion as the Baddi plant is under a
tax free zone. This plant enjoys excise and income-tax exemption.
The company has not only reported continuous rise in profit & profit
margin but also rise in operating profit.
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SHARE HOLDING
Holding Pattern for the last 4 Years
Colgate Palmolive India Limited is a subsidi-
ary of Colgate Palmolive U.S. which holds 51 Graphical presentation of Share Holding Pattern
per cent of the total stake in the company
Colgate Palmolive India Limited is a subsidiary of Colgate Palmolive
U.S., which holds 51 per cent of the total stake in the company.
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Colgate India – Leveraging the benefits
Creating demand in rural areas
Colgate Palmolive India Limited has increased their reach in rural ar-
Creating demand in rural areas- through eas. Rural market is still under penetrated and has lot of growth poten-
various sales promotion measures tial. The company is promoting it products through various measures
such as small volume low priced sachets, distribution of free
toothbrushes and other measure.
Consumer becoming more health and hygiene conscious
Consumer becoming more health and hy- Increasing awareness for oral hygiene coupled with increasing de-
giene conscious to create more demand for mand from rural market and increasing toothpaste penetration, the
the products revenue is expected to sustain a double-digit growth with the favorable
demand scenario in toothpaste as well as in toothbrush segment.
Vast consumer base in India
Rural India accounts for ~70 per cent of the Indian population where
as just accounts for ~52 per cent of the total FMCG market. This will
result in a huge growth potential in the rural market. The company is
Vast consumer base in India leveraging India’s vast population and the increasing purchasing ca-
pacity of the Indian middle class. Colgate is tapping the large Indian
consumer base to establish a strong presence in the country. The
branded oral care penetration in India is less than 50 per cent.
Sectoral Opportunity in other oral products
The markets for advanced oral products like mouth wash, dental floss
Sectoral Opportunity in other oral products and teeth whitening products are at a nascent stage in India. These
products could result into high growth in revenue.
Tax benefits from Baddi Plant
Tax benefits from Baddi Plant - Enjoys ex- The company has expanded its Baddi plant, which is a tax-efficient
cise and income-tax exemption. zone. The company enjoys excise and income-tax exemption through
this plant. Even the company has efficient supply-chain management
which helps to company to boost its profit margin.
Prices rise in some products by 4 per cent
Colgate Palmolive India Limited has increased the prices of some its
Prices rise of some brands by around 4 per product by around 4 per cent, where as other consumer goods makers
cent such as Hindustan Unilever Limited and Procter and Gamble are cut-
ting prices of their products.
Smaller packs to drive the growth
Low price and smaller packs offer by the company is likely to drive
Smaller packs to drive the growth - It con- high growth rate in the future. In rural market, the demands are mainly
tribute around half of the total revenue. drive by small packages. For most of the products, low packs contrib-
ute around half of the total revenue.
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KEY TAKEAWAYS FOR THE INVESTOR - ROAD AHEAD
Robust Growth rate
Market Leader in Oral Care
Tax benefits from Baddi Plant
Growth opportunity in rural market
India’s per capita consumption of toothpaste
is 92 grams, even countries like China and Margin likely to increase in the future
Malaysia consume much at 219 grams and
285 grams respectively
OUTLOOK
With inflation at the lowest level, raw material prices cooling off and
excise duty cut has help FMCG companies to maintain its margin.
Colgate is a market leader in Oral Care Colgate Palmolive India Limited is a market leader in Oral Care seg-
Products ment.
We are very positive on the long term business prospects of the com-
pany and financial performance. At Current Market Price of INR
456.30 and with FY08 and FY09E EPS of INR 20.50 and 23.10, the
stock is trading at a PE of 22.2x and 19.7x respectively. We reiterate
“BUY” on the stock with target price of INR 570.00 with a medium
term investment horizon.
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