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Colgate: Expenses cast shadow

Jul 27, 2001

Colgate Palmolive (India) Limited has reported a net profit of Rs 158 m in 1QFY02. This is up around 18% over first quarter of the previous year. Net sales have increased by around 7% to Rs 3,066 m during the quarter under review. These results are much better than what Colgate declared in the last quarter in terms of topline growth.

(Rs m)1QFY011QFY02Change
Net Sales2,8753,0666.6%
Other Income3571102.9%
Expenditure2,6352,8407.8%
Operating Profit (EBDIT)240226-5.8%
Operating Profit Margin (%)8.3%7.4% 
Interest 02-
Depreciation5042-16.0%
Profit before Tax22525312.4%
Tax91954.4%
Profit after Tax13415817.9%
Net profit margin (%)4.7%5.2% 
Effective tax rate (%)40.4%37.5% 
No. of Shares (eoy) (m)136.0136.0 
Diluted earnings per share*3.94.6 
P/E ratio 34.6 
(* annualised)   

In a press release, the company has reported that the its growth exceeded that of the oral care market as a whole. Unit volume grew by 3% led by flagship 'Colgate Dental Cream' brand. The two new brands 'Colgate Herbal' and 'Colgate Cibaca Top' also contributed to this growth.

During the quarter, Colgate launched an imported battery-powered toothbrush 'Actibrush', through exclusive chemist shops and dentists in the top 50 towns. The brush is priced at Rs 999 per piece and is aimed at the premium end of the market.

The company's advertising expenses saw a significant jump of 31% to Rs 688 m as compared to 1QFY01. The company's staff costs also went up by nearly 14% to Rs 133 m during the quarter. As a result, Colgate's expenditure increased at a faster clip than sales and thus, its operating margins declined by 90 basis points to 7.4%.

A huge jump in other income came as a result of a Rs 39 m dividend received from the company's 100% Nepalese subsidiary. If we exclude the effect of this, the profit actually declines by 12%. This is a concern as the dividend income will not accrue to Colgate every quarter. Though the topline has shown improvement, higher expenses continue to cast a shadow on the company's profit growth.

At Rs 161 the stock trades at a P/e of 35 times its 1QFY02 annualised earnings. The valuations seem on the higher side, despite improvement in topline growth.

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