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UBS Investment Research
Colgate-Palmolive India
B rand power reaffirmed
Event: Colgate #1 in The Economic Times’ Brand Equity Survey 2011
Colgate has emerged as the most trusted brand by Indians in The Economic Times’
India’s most trusted brands survey 2011. This is after four years of being in the #2
position. According to AC Nielsen, Colgate has a ~52% market share in the Indian
toothpaste market with product offerings across price points.
Impact: reaffirming its dominance
We believe any competition in the oral care category will not pose a significant
threat to Colgate in the long term. We believe any new competitor would likely
take market share from local brands rather than the market leader given Colgate’s
dominance. Any serious competition would be met with increase in ad spend,
which could affect quarterly profitability—presenting an attractive opportunity for
the stock, in our view. Colgate has the best brand equity of all brands, which
should enable it to remain market leader.
Potential launches from parent portfolio
To leverage its market presence and de-risk its Indian portfolio, we expect product
launches from the parent’s portfolio. This, in our view, will be a key trigger for
stock price performance. We have an anti-consensus Buy rating on Colgate as we
believe it will benefit from: 1) consumer upgrades; 2) high market growth
opportunity; 3) a strong distribution network; and 4) powerful brand equity.
Valuation: maintain Buy with price target of Rs1,250
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 Colgate’s earnings 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
B rand power reaffirmed
Event: Colgate #1 in The Economic Times’ Brand Equity Survey 2011
Colgate has emerged as the most trusted brand by Indians in The Economic Times’
India’s most trusted brands survey 2011. This is after four years of being in the #2
position. According to AC Nielsen, Colgate has a ~52% market share in the Indian
toothpaste market with product offerings across price points.
Impact: reaffirming its dominance
We believe any competition in the oral care category will not pose a significant
threat to Colgate in the long term. We believe any new competitor would likely
take market share from local brands rather than the market leader given Colgate’s
dominance. Any serious competition would be met with increase in ad spend,
which could affect quarterly profitability—presenting an attractive opportunity for
the stock, in our view. Colgate has the best brand equity of all brands, which
should enable it to remain market leader.
Potential launches from parent portfolio
To leverage its market presence and de-risk its Indian portfolio, we expect product
launches from the parent’s portfolio. This, in our view, will be a key trigger for
stock price performance. We have an anti-consensus Buy rating on Colgate as we
believe it will benefit from: 1) consumer upgrades; 2) high market growth
opportunity; 3) a strong distribution network; and 4) powerful brand equity.
Valuation: maintain Buy with price target of Rs1,250
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 Colgate’s earnings 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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