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BUY Colgate – Citi + Merill Lynch

November 27, 2007

Colgate’s business has demonstrated strong growth over the 8 quarters, with sales growing in excess of 15%. It has gained share in rural areas through its “Cibaca” brand. Colgate has recently increased its focus on other personal care products (hand wash, shower gels), which though currently coming off a small base, set the tone for the next growth opportunity.

With major capital expenditure behind it, and incremental tax and excise savings from its new plants, cash generation is likely to accelerate.Over the next two years, Merill forecasts Colgate’s sales to grow 15% led by 10-11% of volume growth. We expect EBITDA margins to expand ~30-40bp p.a driven primarily by internal efficiencies.

Merill Lynch expects Colgate to report an EPS of Rs 18.06 and Rs 20.86 for FY08 and FY09 respectively. Merill has set a target of Rs 500 on Colgate. Citi has set a more conservative target of Rs 485 on Colgate.

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