3QFY2013 Result Update | FMCG

January 31, 2013

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

NEUTRAL
CMP Target Price
Investment Period

`1,351 -

3QFY13 763 129 16.9 111

3QFY12 670 127 19.0 116

% yoy 13.9 1.2 (212) (3.9)

2QFY13 792 176 22.2 145

% qoq (3.8) (26.7) (529) (23.5)

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 18,370 (460) 0.3 1580/991 15,967 1 19,895 6,035 CLGT.BO CLGT@IN

For 3QFY2013, Colgate Palmolive (Colgate) posted a 3.9% yoy de-growth in its bottom-line to `111cr, due to a 212bp yoy contraction in OPM on account of higher advertisement expenditure, which rose by 44% on a yoy basis. Key highlights: During 3QFY2013, Colgate posted a 13.9% yoy growth in its net sales to `763cr, with volume growth estimated to be ~7% for the quarter. For 9MFY2013, the volume growth stood at 9%. The company has increased its volume market share on tooth paste to 54.5% (from 52.4% for CY2011) aided by healthy growth in flagship brands. For 3QFY2013, OPM stood at 16.9% down 212bp yoy due to a substantial 44% yoy increase in advertisement and promotional expenditure. Bottom-line fell by 4% yoy to `111cr due to flat performance on the EBITDA front and higher tax outgo Outlook and valuation: We expect Colgate to report a 15.4% CAGR in its top-line and ~17.1% CAGR in its earnings over FY2012-14E. At the current market price, the stock is trading at 30x 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 5.3 21.8 21.8

Abs. (%) Sensex CLGT

3m 7.5 5.2

1yr 15.7 35.1

3yr 21.6 99.1

FY2011 2,286 16.5 403 (4.9) 22.5 29.6 45.6 47.8 113.4 135.8 7.9 34.9

FY2012 2,693 17.8 446 10.9 21.5 32.8 41.1 42.2 109.0 127.1 6.7 31.2

FY2013E 3,120 15.8 522 16.9 20.2 38.4 35.2 32.7 104.6 114.2 5.7 28.1

FY2014E 3,588 15.0 613 17.4 21.1 45.0 30.0 26.2 97.0 109.4 4.9 23.3

V Srinivasan
022 3935 7800 Ext: 6831

v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Colgate | 3QFY2013 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

3QFY13 763 304 39.9 63 8.3 100 13.1 166 21.82 634 129 16.9 0 11 33 150 0 150 19.7 39 26.1 111 15 14 8.2 111

3QFY12 670 265 39.6 53 8.0 69 10.3 155 23.12 542 127 19.0 0 10 32 149 0 149 22.2 33 22.2 116 17 14 8.5 116

% yoy 13.9 14.8 18.2 44.8 7.5 16.9 1.2 (100.0) 14.1 4.2 1.2 1.2 19.2 (3.9)

2QFY13 792 324 40.9 54 6.9 89 11.2 150 18.9 617 176 22.2 0 11 15 180 0 180 22.7 35 19.4 145 18 14

% qoq (3.8) (6.0) (2.3) 16.2 20.8 12.3 16.7 11.3 15.6 2.8 (26.7) #DIV/0! 6.8 120.8 (16.5) (16.5)

9MFY2013 2,273 928 40.8 180 7.9 272 12.0 464 20.4 1,844 428 18.9 0 32 98 494 0 494 21.7 120

9MFY2012 1,938 775 40.0 164 8.5 321 16.5 319 16.5 1,579 359 18.5 2 29 88 416 0 416 21.4 100 24.0 316 16 14 23.2 316

% chg 17.3 19.7 9.8 (15.0) 45.3 16.8 19.4 (100.0) 10.7 10.9 18.8 18.8 20.1 18.3

34.6 (23.5)

24.3 374 16 14

(3.9) (3.9)

10.7 145

(23.5) (23.5)

27.5 374

18.3 18.3

Exhibit 2: 3QFY2013 Actual vs Angel estimates

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

Actual 763 129 16.9 111

Angel Est. 787 165 21.0 126

% Diff. (3.0) (22.0) (411) (11.9)

January 31, 2013

Colgate | 3QFY2013 Result Update

Top-line growth at 13.9% yoy

During 3QFY2013, Colgate posted a 13.9% yoy growth in its net sales to `763cr. In the tooth paste category, the company has gained market share from its rivals resulting in the companys volume market share going up to 54.5% for the period January to December 2012. 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 (38.2% as of 1HCY2013 vs 52.4% for 1HCY2012). Colgate continues to focus on innovation to drive its growth. It recently launched Colgate Pro Gum Health toothpaste to effectively work on gum problems. It has also launched Colgate Sensitive Pro Relief Multi Protection tooth paste.

Exhibit 3: Top-line growth at 13.9% yoy

1,000 800 (` cr) 600 756 774 763 657 670 686 558 582 611 400 200 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 25.0 20.0 (yoy %) 15.0 10.0 5.0 -

Exhibit 4: Market share higher on yoy basis as of 3QFY2013

60 55 50 (%) 45 40 35 30 25 3Q12 4Q12 Toothpaste 1Q13 2Q13 3QFY13 52.5 54 54.5 54.3 54.5

Top-line (LHS)

yoygrowth (RHS)

Source: Company, Angel research

Source: Company, Angel research

OPM down 212bp yoy

For 3QFY2013, OPM stood at 16.9%, down 212bp yoy, due to a substantial 44% yoy increase in advertisement and promotional (A&P) expenditure. The higher A&P expenditure has helped the company to increase its market share. The bottom-line fell by 3.9% yoy to `111cr due to flat performance on the EBITDA front and higher tax outgo. The tax rate for the quarter was higher by 395bp on a yoy basis.

Exhibit 5: OPM down 457bp yoy

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

Exhibit 6: Net Profit down by 3.9% yoy

170 150 130 110 (` cr) 90 131 114 116 117 100 70 66 50 30 10 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 99 100.0 80.0 60.0 40.0 145 20.0 111 (20.0) (40.0) (60.0) 3Q13 (yoy %)

(%)

40.0 30.0 20.0 10.0 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 13.4 21.4 19.1 17.1 19.0 22.3 21.5 20.3 16.9

OPM

Gross margin

PAT (LHS)

yoy growth (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

January 31, 2013

Colgate | 3QFY2013 Result Update

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

During FY2012-14E, we expect Colgate to report a 15.4% CAGR in its top-line and ~17.1% CAGR in its earnings over FY2012-14E. At the current market price, the stock is trading at 30x 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)
43,184 5,776 18,370 22,930 24,109 15,848 102,228 240,338 13,980 45,871 9,251

CMP (`)
4,502 484 1,351 132 708 3,768 473 307 227 4,757 150

TP (`)
584 -

Upside (%)
21 -

P/E (x) FY13E

36.9 26.4 35.2 29.2 34.9 37.2 31.3 32.8 35.3 42.1 21.7

EV/Sales (x) FY13E

3.7 0.9 5.7 3.7 4.1 4.7 3.8 8.0 2.9 5.3 1.2

RoE (%) FY13E

37.7 39.1 104.6 43.4 25.5 36.3 85.7 35.1 25.4 71.2 8.9

CAGR # Sales
17.6 15.3 15.4 16.6 24.7 16.1 15.5 17.4 18.6 16.0 9.7

FY14E
30.6 19.6 30.0 24.1 27.8 31.9 27.9 27.7 28.0 33.4 18.3

FY14E
3.1 0.8 4.9 3.1 3.4 4.0 3.3 6.8 2.4 4.4 1.1

FY14E
35.7 42.7 97.0 44.0 25.4 31.9 74.3 35.1 22.6 60.3 9.8

EPS
19.4 25.6 17.1 21.6 25.8 18.3 19.3 18.7 28.1 16.1 19.1

Source: Company, Angel Research

January 31, 2013

Colgate | 3QFY2013 Result Update

Exhibit 8: One year forward PE

50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Mar-09 Mar-10 Mar-11 Nov-09 Nov-10 Nov-11 Mar-12 May-09 May-10 May-11 May-12 Nov-12 Sep-09 Sep-10 Sep-11 Sep-12 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jul-09 Jul-10 Jul-11 Jul-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.

January 31, 2013

Colgate | 3QFY2013 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) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2009 FY2010 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 15.7 295 290 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 45.8 21.6 31.1 31.1 43.4

FY2011 FY2012 FY2013E FY2014E 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 (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 10.9 16.6 32.8 32.8 10.9 3,120 3,120 15.8 2,488 1,236 499 268 485 632 9.2 20.2 41 591 9.6 18.9 3 119 16.9 707 20.1 707 185 26.2 522 522 16.9 16.7 38.4 38.4 16.9 3,588 3,588 15.0 2,830 1,404 574 301 551 758 20.0 21.1 47 711 20.4 19.8 3 131 15.6 839 18.7 839 227 27.0 613 613 17.4 17.1 45.0 45.0 17.4

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

January 31, 2013

Colgate | 3QFY2013 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) 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

FY2013E FY2014E 14 548 562 (12) 30 1 581 693 400 294 14 27 47 40 1,000 575 120 306 841 159 581 14 687 701 (12) 30 1 719 780 446 334 16 27 47 40 1,159 688 120 351 903 256 719

203 384 251 133 5 41 38 538 251 193 94 551 (14) 203

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

January 31, 2013

Colgate | 3QFY2013 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 707 41 152 (68) 185 2 649 (52) (52) 395 (63) (332) 265 310 575

FY2014E 839 47 9 (74) 227 12 607 (89) (89) 474 (69) (406) 113 575 688

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

January 31, 2013

Colgate | 3QFY2013 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 62.3 58.7 84.9 1.1 10.7 74.4 89.1 21.7 21.7 23.0 15.0 15.9 142.2 153.3 4.3 18 2 85 (57)

FY2010 43.4 39.9 56.3 1.5 9.2 46.4 57.6 31.1 31.1 33.9 20.0 24.0 150.3 156.1 4.5 21 2 79 (57)

FY2011 45.6 42.1 47.8 1.6 7.9 37.4 45.4 29.6 29.6 32.1 22.0 28.2 135.8 113.4 4.4 25 12 94 (51)

FY2012 41.1 37.8 42.2 1.9 6.7 33.5 39.7 32.8 32.8 35.7 25.0 32.0 127.1 109.0 4.7 30 12 79 (34)

FY2013E 35.2 32.7 32.7 1.9 5.7 30.1 30.6 38.4 38.4 41.4 25.0 41.3 114.2 104.6 4.9 24 11 89 (49)

FY2014E 30.0 27.9 26.2 2.2 4.9 24.8 24.5 45.0 45.0 48.5 30.0 51.5 109.4 97.0 4.9 24 11 83 (44)

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

January 31, 2013

Colgate | 3QFY2013 Result Update

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

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

January 31, 2013

10