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Colgate: India Vs US

Jun 1, 2005

Oral care major, Colgate India, announced its 4QFY05 and full year numbers recently. We decided to compare the company’s performance vis-à-vis its parent who also happens to be the worldwide leader in oral care. Here is sneak comparison of the company’s Indian operations Vs the global figures.

Colgate-Palmolive USA
Colgate-Palmolive is a US$ 10.6 bn MNC, catering to more than 200 countries with consumer products. The company has a strong focus on its core businesses — Oral Care, Personal Care, Home Care and Pet Nutrition. Colgate has delivered strong global growth by a defined strategy to increase market leadership positions for key products, such as toothpaste, toothbrushes, bar and liquid soaps, deodorants / antiperspirants, dishwashing detergents, household cleaners, fabric conditioners and specialty pet food. The company looks at its business based on 4 regions and pet food separately. The business is thus divided into 5 divisions, namely North America, Latin America, Europe, Asia/Africa and Hill’s pet nutrition.

The below table highlights the MNC’s performance over the last 3 years.

Colgate USA
(US$ m) CY02 CY03 CY04 CAGR
Net sales 9,294 9,903 10,584 6.7%
Other Income 23 (15) 90 98.1%
Expenditure 7,281 7,737 8,462 7.8%
EBITDA 2,013 2,166 2,122 2.7%
Operating margin % 21.7% 21.9% 20.0%  
Net profit after Tax(Loss) 1,288 1,421 1,327 1.5%
Net profit margin % 13.9% 14.4% 12.5%  
EPS (US$) 2.19 2.46 2.33  

Colgate-Palmolive India Ltd:
Promoted by Colgate-Palmolive USA as a 51% subsidiary, Colgate has been present in India for over 50 years. The company’s flagship product, Colgate Dental Cream, is the largest selling toothpaste in India, with an estimated market share of over 30%. The company acquired Hindustan Ciba Geigy (Cibaca) in the year 1994, which helped it increase its market share. The company also has a significant market share in the toothbrush category. This and shaving brushes accounted for 10% of its FY04 revenues.

Colgate India
(US$ m) FY03 FY04 FY05 CAGR
Net sales 215 213 219 0.9%
Other Income 8 7 8 -2.2%
Expenditure 186 180 181 -1.2%
EBITDA 30 33 38 13.3%
Operating margin % 13.8% 15.6% 17.4%  
Net profit after Tax(Loss) 20 25 26 13.1%
Net profit margin % 9.4% 11.5% 11.8%  
EPS (US$)* 0.15 0.18 0.19  
1US$ = Rs 44

The journey over the years…

From the above tables, we infer that the parent has grown at a much faster pace as compared to its Indian operations despite its large scale (the parent revenues are around 50 times more than that of Colgate India). Margins are also higher for the parent, mainly because India is basically a single segment company, oral care. Also, India being a very price sensitive market, price increases are difficult owing to competition.

The parents folio consists of oral, personal, household, fabric care and pet nutritional products while in India, its product offerings are restricted to oral, personal and household care. Infact, oral care is only 35% of the parent’s folio, unlike India, wherein around 93% of the revenues come from oral care alone.

  India US
Population (m) 1,028 296
Market share* 52% 40%
Per Capita consumption (gms) 82 520
Avg.price of a tube (US$) 1.48 2.49
Product offerings 11 200
* Global market share

But even in oral care, Colgate India has lot of growth potential. Despite being the 2nd most populous country on earth, India, has one of the lowest per capita consumption of toothpaste in the world at approximately 82 gms. In the US per capita consumption is close to 520 gms.

The parent globally, has decided to close a third of its 78 manufacturing units and India could be a favored destination for outsourcing toothpaste. Currently, the China plant produces over 900 m toothbrushes per year and supplies to over 60 Colgate subsidiaries worldwide. The parent has a 5-year plan of cutting down toothpaste and bar soap manufacturing locations to 15 each and toothbrush manufacturing locations to 8 globally. This too could benefit the company in India.

What to expect?
At Rs 219, the stock is trading at 26.3 times its FY05 earnings and market cap to sales of 3x. Though per capita consumption of oral care products in India is poor compared to even other developing nations, it is essentially a long-term story. In our view, the prospects of the company are still too leveraged on one product, which is facing intense competition in the market. With P&G’s intended entry in the segment, things could get rough in FY06 and FY07.

Colgate USA trades at a price of US$ 51 (approximately), at a P/E multiple of 22x CY04 earnings and market cap to sales of 2.7x.

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