Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
The fight back has begun... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 18, 2000

    The fight back has begun...

    The scourge of cavities,Colgate Palmolive India Limited (CPIL) seems to be on a comeback trail. Never known as a tough competitor in the past, the company is finally getting its act together. But first a look at what happened in the recent past.

    The company went through a tough time in FY99 when Hindustan Lever (HLL) turned the heat on in the toothpaste market. Initially, HLL took care not to attack the mother brand Colgate Dental Cream directly but positioned its Close up Gel on the freshness platform, Mentadent (later renamed as Pepsodent G) on the safety platform and Pepsodent on the dental care platform. Once it had built up a critical mass, HLL shifted gear, withdrew Mentadent and attacked with Pepsodent. It pumped in almost Rs 1.50 billion in advertising in FY 99, most of it aimed at building up Pepsodent and captured a substantial part of Colgate Dental Care's urban market share. (Latest estimates indicate a 35 percent market share for HLL in the overall toothpaste market.)

    The one fatal mistake that CPIL committed here was not using the Cibaca brand that it took over from Hindustan Ciba Geigy. The company took over Cibaca at a cost of Rs 1.30 billion and could have used the brand as a flank for its flagship Colgate Dental Cream. Alternatively, it could also have used the brand to launch products on the gel platform. However, the company chose to kill the product. In hindsight the takeover of Cibaca itself seemed a reactive strategy just to prevent HLL from doing so. The company paid a huge cost for it.

    The company ended the year with a net profit of Rs.456.4 million as against Rs 801 million in the last year (a fall of almost 43 percent). The first signs of a turnaround however were evident in the last quarter of the 1998-99. While net profits in the first three-quarters amounted to Rs 274.2 million, in the last quarter the net profits shot up to Rs.182.2 million.

    (Rs m) Dec 1998
    (9 months)
    Dec 1999
    Sales 7,505.0 8,285.0 10.4%
    Operating profit 562.0 707.0 25.8%
    Operating profit margin 7.5 8.5  
    Interest 2.0 1.0 -50.0%
    Depreciation 166.0 191.0 15.1%
    Other Income 56.0 87.0 55.4%
    PBT 450.0 602.0 33.8%
    Tax 175.0 278.0 58.9%
    PAT 275.0 324.0 17.8%
    Number of shares 136.0 136.0  
    EPS 2.0 2.4 17.8%

    CPIL was able to arrest the decline in its market share on the basis of a two pronged strategy. (The company claims to have a market share of around 52 percent in the toothpaste market and around 46.3 percent in the toothpowder market. Besides, it remains a market leader in the toothbrush market with a 45 percent market share, post Cibaca takeover.)

    Colgate's market shares: A turnaround in the offing

    First, it introduced an entire range of toothpaste to match HLL's segmentation. Thus Colgate Dental Cream was repositioned as Colgate Supershakti and seems to be doing quite well. Next came the Gel variant followed by Colgate Total, Colgate Sensation Whitening and Colgate Strips.

    Secondly, it refocused on strengthening its distribution network. So far, the Colgate toothpaste reaches 20,000 villages and the company plans a foray into 140,000 villages within next five year's.

    Even in the past Colgate, has come back after being written off, whether in the USA (vs. P & G) and in Thailand (vs. Unilever) following the same strategies of product segmentation, aggressive marketing and focus on distribution.

    During the first three-quarters also the performance seems to be on similar lines. While the first quarter topline saw a 22 percent jump in the topline, this was primarily due to new product launches and re-launching of Colgate Dental Cream and pushing these products through the distribution pipeline. What was encouraging however, was the increase in operating margins by 1.5 percent over the first half of the last year despite high decibel advertising. During this period, the company regained market share of around 3 percent. (The margins had dropped from 22 percent in FY 93 to 8.40 percent in FY99 primarily due to the increase in advertising expenditure as a percentage of sales from 8.5 percent in FY 96 to 20 percent in FY 99.)

    During the first nine months the company has reported a jump in the pre-tax profit by almost 34 percent over the corresponding period of the last year, a sign of much improved operational performance. The company has beefed up its management bringing in Mr. Derrick Samuel as managing Director (In the past Mr. Samuel headed Colgate's operations in the South Pacific and has a record of engineering volume growth and building strong trade partnerships) and Mr. Vikram Kaushik (who headed Britannia's bakery operations and achieved commendable results). CPIL remains a zero debt company and will continue to report a return on capital exceeding 20% in the current year too. The fightback has begun and one can hope for a sparkling performance in the coming year, tough competition from HLL notwithstanding.



    Equitymaster requests your view! Post a comment on "The fight back has begun...". Click here!


    More Views on News

    Colgate: Competition Impacts Volume Growth (Quarterly Results Update - Detailed)

    Nov 25, 2016

    Colgate-Palmolive (India) has announced the second quarter results financial year 2016-2017 (2QFY17). While the topline increased by 9.5% YoY, the bottomline has increased by 15.6% YoY.

    Colgate: Margins come under pressure (Quarterly Results Update - Detailed)

    Oct 4, 2016

    Colgate-Palmolive (India) has announced the first quarter results financial year 2016-2017 (1QFY17). While the topline increased by 12.4% YoY, the bottomline has increased by 8.4% YoY.

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    Colgate: Excise Benefit Phase-off Mars FY16 Results (Quarterly Results Update - Detailed)

    Jun 2, 2016

    Colgate-Palmolive (India) declared results for the quarter and year ended March 2016. The company's revenues were up by 7% YoY, while profits declined by 11% YoY during the quarter.

    Colgate: Lower A&P Costs Prop Up Margins (Quarterly Results Update - Detailed)

    Feb 3, 2016

    Colgate-Palmolive (India) announced its results for the quarter ended December 2015. The company's revenues were up by 2% YoY, while profits rose by 22% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in COLGATE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Detailed Financial Information With Charts