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Colgate: Volume driven strategy

Sep 18, 2000

In the last three years, Colgate Palmolive (India) Limited has gone through the tough period. The company had lost its market share and became a slow mover stock for investors. It is now planning to see a double-digit growth in its topline led by volume sales. As per the ORG-Marg estimates, Rs 10 bn toothpaste market had reported a negative growth in FY00. The penetration of toothpaste in India is still less than 30%. The market is growing at a slower pace and in the past few years growth rate is further impacted due to continuous increase in the prices and increasing competition. Colgate is the leader in the market with 50% share and its close competitor HLL commands a 35% market share.

As can be seen from the table below, in FY00, Colgate has successfully grown its volume sales and has also effected a price increase of around 8% in soaps and toilet preparations segment which contribute the major portion of total sales. The company would continue with its strategy of growing topline boosted by volumes by introducing new products and re-launching some of the successful brands. During the year, the company has re-launched Colgate Dental Cream and Colgate Fresh Energy Gel. It will also continue its focus on Colgate Total, Sensation Whitening and Cibaca. Concentration on the volumes could only drive the growth in this price sensitive market.

Revenue mix
Soaps, Cosmetics and Toilet Preparation
Year Sales Qty (m) Sales (Rs m) Price (Rs/Unit)
FY94 602 5,590 9.3
FY95 628 6,166 9.8
FY96 714 7,340 10.3
FY97 849 8,571 10.1
FY98 820 8,906 10.9
FY99 750 8,724 11.6
FY00 786 9,887 12.6
Tooth Brushes & Shave Brushes
FY94 89 774 8.7
FY95 107 811 7.6
FY96 186 1,015 5.5
FY97 171 958 5.6
FY98 164 925 5.6
FY99 139 853 6.1
FY00 166 941 6.2

At the current market price of Rs 160, Colgate is available at a P/E of 42 times its FY00 earnings and 37 times its projected FY01 earnings. Its market cap to sales ratio of 1.9 times suggests that its long-term growth is a concern, as the market growth remains low and the competition intensifies. The perception about the stock is likely to change gradually with improved financial performance and aggressive strategies implemented by the company.


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