Colgate FY01: Where is the smile? - Views on News from Equitymaster

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Colgate FY01: Where is the smile?

Jun 18, 2001

Colgate Palmolive (India) Limited has posted a net profit of Rs 625 m for the year ended March 31, 2001. This is up 21% YoY. On the face of it the growth looks good. But the company has earned Rs 55 m from the sale of real estate and this is included in this growth. If we remove the effect of this one time gain, Colgate's net profit actually went up by only 10%.

(Rs m)FY00FY01Change
Gross Sales 11,21211,7695.0%
Other Income15224057.9%
Operating Profit (EBDIT)981968-1.3%
Operating Profit Margin (%)8.7%8.2%
Profit before Tax8991,00311.6%
Extraordinary items055
Profit after Tax51862520.7%
Net profit margin (%)4.6%5.3%
Effective tax rate (%)42.4%43.2%
No. of Shares (eoy) (m)136.0136.0
Diluted earnings per share3.84.6
P/E ratio34.8

Gross sales of the company have shown a 5% increase YoY to Rs 11,769 m during the same period. The company has shown a sharp jump in other income and its depreciation provisioning has come down by 13%. This has helped Colgate in improving its net profits.

Colgate's fourth quarter results seem to have caused the damage to its full year performance. In its previous 9 months of FY01, the company's turnover growth stood at 10% YoY. Its bottomline had improved by 22%. Going by these figures, it seems that Colgate actually saw a miniscule 0.2% growth in 4QFY01 turnover and a 16% decline in its net profit during the same period.

At the current price of Rs 160 the stock is trading at a P/E multiple of 34.8 x its FY01 earnings (including the extraordinary gains). If we exclude the extraordinary gains the Colgate stock is trading at a P/E multiple of 38 times FY01 earnings. The valuations of the company are high considering the current slowdown facing the FMCG sector.

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