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UBS Investment Research
Colgate-Palmolive India
I ndia’s #1 brand [EXTRACT]
Believe in the brand
We have an anti-consensus Buy rating on the stock as we believe Colgate-
Palmolive India (Colgate) will benefit from: 1) consumer upgrading; 2) strong
market growth opportunities; 3) its effective distribution network; and 4) its
powerful brand equity. We expect launches by Colgate-Palmolive India from the
parent company’s portfolio to be a key trigger for the share price.
High ROE due to high margins, improvement in asset efficiencies
ROE improved from 26% in FY02 (the year Pepsodent was launched) to 105% in
FY11 (when Colgate had established itself as the #1 brand in India). The
improvement in ROE is due to improvements in net income margins and asset
efficiencies and exceptional working capital management.
Competition to have limited impact
We think new entrants in the oral care business will only be able to take market
share from local brands, not market leader Colgate, due to the unorganised nature
of the retail market. We believe additional ad spend by Colgate to counter any new
competition will aid volume growth due to its better distribution and presence.
Valuation: price target of Rs1,250.00
We derive our price target from a DCF-based methodology and explicitly forecast
long–term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11% and a beta of 0.55.
Colgate-Palmolive India
Colgate-Palmolive India is the leading oral care company in India with a 51%
share of the toothpaste market. Oral care contributes to 96% of sales and
personal care 2%. It has a wide distribution network with 1,713 direct stores and
about 4 million indirect stores. Colgate's rural market contributes 40% of sales.
Statement of Risk
We believe the key risks to our earnings forecasts and valuation are loss of
market share due to increased competition, commodity price risk, an inability to
pass on price increases in an increasingly competitive market, the risk of a single
segment focus, and a change in tax rates in locations designated as tax benefit
zones.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Colgate-Palmolive India
I ndia’s #1 brand [EXTRACT]
Believe in the brand
We have an anti-consensus Buy rating on the stock as we believe Colgate-
Palmolive India (Colgate) will benefit from: 1) consumer upgrading; 2) strong
market growth opportunities; 3) its effective distribution network; and 4) its
powerful brand equity. We expect launches by Colgate-Palmolive India from the
parent company’s portfolio to be a key trigger for the share price.
High ROE due to high margins, improvement in asset efficiencies
ROE improved from 26% in FY02 (the year Pepsodent was launched) to 105% in
FY11 (when Colgate had established itself as the #1 brand in India). The
improvement in ROE is due to improvements in net income margins and asset
efficiencies and exceptional working capital management.
Competition to have limited impact
We think new entrants in the oral care business will only be able to take market
share from local brands, not market leader Colgate, due to the unorganised nature
of the retail market. We believe additional ad spend by Colgate to counter any new
competition will aid volume growth due to its better distribution and presence.
Valuation: price target of Rs1,250.00
We derive our price target from a DCF-based methodology and explicitly forecast
long–term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11% and a beta of 0.55.
Colgate-Palmolive India
Colgate-Palmolive India is the leading oral care company in India with a 51%
share of the toothpaste market. Oral care contributes to 96% of sales and
personal care 2%. It has a wide distribution network with 1,713 direct stores and
about 4 million indirect stores. Colgate's rural market contributes 40% of sales.
Statement of Risk
We believe the key risks to our earnings forecasts and valuation are loss of
market share due to increased competition, commodity price risk, an inability to
pass on price increases in an increasingly competitive market, the risk of a single
segment focus, and a change in tax rates in locations designated as tax benefit
zones.
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