Colgate Palmolive India has reported enthusing numbers for the March quarter. The company's sales are down 2% during the quarter, but this still better than the 8.5% dip in topline witnessed in December quarter. The oral care major has reported a strong 38% bottomline growth led by significant growth in other income, as well as reducing the depreciation provisioning by half.
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The year FY03 saw a shift in the company's strategy in a bid to save its profitability. The company relied on reducing advertising expenses as well as focused on operating efficiencies. Consequently, the company's operating margins improved for FY03 despite a 9% topline dip. As a result, Colgate finished with a healthy 27% bottomline growth during the year.
Colgate seemed to have adopted this strategy for most of FY03 in light of the stagnation it saw in oral care market. The dip in advertisement spends could also be attributed to a similar strategy adopted by arch rival, HLL, whose focus was on its other businesses. However, at its last analyst meet, HLL had mentioned that in 2003 its focus would be on its hair care and oral care business. This and the rising share of smaller players like Anchor in the oral care pie seems to have prompted Colgate to up its advertisement budgets in 4QFY03.
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This is evident from the 11% growth in ad spends during the quarter, as advertising to sales went up to 16.5% from 14.5% witnessed in the March quarter last year. Consequently, operating margins declined during the quarter. The company has been rescued by the significant dip in depreciation provisioning and a significant growth in other income during the quarter. But there is no explanation for this dip in provisioning.
The company has so far declared 2 interim dividends totaling Rs 4.25 per share for FY03. The stock was up sharply in recent times owing to parent buyback rumours, which the company was quick to deny. At the current price of Rs 142, the stock trades at 22x FY03 earnings. Though the lower decline in revenues in 4QFY03 is a positive, the prospects of the company are still too leveraged on one product, which is facing intense competition in the market. The valuation in that sense is streched.
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