Colgate: Buoyancy continues - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Colgate: Buoyancy continues

Oct 20, 2004

Performance summary
Oral care major, Colgate Palmolive, has seen continued buoyancy in revenues during the September quarter. Its topline has grown by 6.5% during the quarter (almost at the same rate as in June quarter), led by volume growth in its core business of oral care. Continued operating margin improvement led the company to report a strong 16% bottomline growth during the quarter.

(Rs m)2QFY042QFY05Change1HFY041HFY05Change
Net Sales 2,3072,4576.5%4,5784,8846.7%
Operating Profit (EBDITA)33844231.0%63784632.8%
EBDITA margin (%)14.6%18.0% 13.9%17.3% 
Other income6354-13.8%142110-22.6%
Interest 1378.6%25160.0%
Profit before Tax35844624.5%69385623.5%
Profit after Tax23227016.4%43952419.5%
Net profit margin (%)10.0%11.0% 9.6%10.7% 
Effective tax rate (%)35.3%39.5% 36.7%38.8% 
No. of Shares (m)136.0136.0 136.0136.0 
Diluted Earnings per share (Rs)*6.87.9 6.57.7 
P/E ratio (x)    18.9 
(* annualised)      

What is the company’s business?
The Colgate name is synonymous with oral care in India. The company has successfully created a strong brand image and awareness in the minds of consumers over the last fifty years. Colgate India earns around 95% of its revenues from the oral care segment. The company is the leader in the 90,000 TPA oral care market with nearly 50% share. The oral care market has a penetration of only around 42% in India. The company also has a small presence in the personal products category with brands such as Palmolive (soaps, shaving products) and Charmis (face cream).

What has driven performance in 1QFY05?
Sales: The company undertook around 15%-17% price reduction in its overall toothpaste portfolio during most of FY04. The encouraging thing to note was that despite the sharp price cuts, value decline in sales was not that significant in FY04 (only down 0.9%). In the first half of FY05, the company has witnessed double digit volume growth, led by buoyancy in lower priced product categories. Strong volume growth was evident in its flagship brand 'Colgate Dental Cream' (CDC) and Colgate Cibaca. Also, its toothpowder continued to gain share in its segment (current market share at 51% as per the company). These were the key reasons for the growth in topline during the June and September quarters.

Cost break-up
as a % of net sales2QFY042QFY051HFY041HFY05
Total Cost of goods51.3%51.1%52.4%51.0%
Staff Cost6.4%7.3%7.0%6.8%
Other Expenditure10.7%9.2%10.4%9.7%
Total expenditure85.4%82.0%86.1%82.7%

Operating margins: In FY04, one of the key reasons for the improvement in operating margins was the cost cutting on the advertising front. Ad expenses as a percentage of sales declined from nearly 20% in FY03 to about 16% in FY04. This has continued 2QFY05 as well (ad expense as percentage of sales stood at 14.4% in 2QFY05, as compared to 17% in 2QFY04). Cost cutting in other expenses head also led to the improvement in operating margins. Colgate's 16% net profit growth was led by the significant improvement on the operating margin front. The improvement in OPM was enough to counter nearly 14% fall in other income and higher interest and depreciation expenses.

Over the last five quarters
Sales growth (YoY)-3.2%3.4%-0.6%6.8%6.5%
Advertising as % of sales15.3%16.2%12.2%16.0%14.4%
OPM (%)13.2%12.9%20.2%16.6%18.0%
Net profit growth (YoY)22.0%30.1%23.2%23.0%16.4%

What to expect?
At the current price of Rs 146, the stock trades at 19x annualised 1HFY05 earnings and market cap. to sales of 2x. Owing to the renewed strength in the topline the stock may see some more upside. However, the prospects of the company are still too leveraged on one product, which is facing intense competition in the market. It is early days yet to comment on whether this topline growth trend will sustain. Operating margin expansion too may be limited from here on.

Equitymaster requests your view! Post a comment on "Colgate: Buoyancy continues". Click here!


More Views on News

Colgate Q4 Results Doesn't Excite Investors Despite Strong Operational Performance (Views On News)

May 18, 2021

A major concern for Colgate is its market share loss in the toothpaste category to Dabur and Patanjali.

COLGATE Announces Quarterly Results (3QFY21); Net Profit Up 24.7% (Quarterly Result Update)

Jan 29, 2021 | Updated on Jan 29, 2021

For the quarter ended December 2020, COLGATE has posted a net profit of Rs 2 bn (up 24.7% YoY). Sales on the other hand came in at Rs 12 bn (up 7.4% YoY). Read on for a complete analysis of COLGATE's quarterly results.

COLGATE Announces Quarterly Results (2QFY21); Net Profit Up 12.3% (Quarterly Result Update)

Oct 22, 2020 | Updated on Oct 22, 2020

For the quarter ended September 2020, COLGATE has posted a net profit of Rs 3 bn (up 12.3% YoY). Sales on the other hand came in at Rs 13 bn (up 6.0% YoY). Read on for a complete analysis of COLGATE's quarterly results.

Key Points to Know Before Applying to Dodla Dairy's Public Issue (Views On News)

Jun 14, 2021

What you should know before applying to Dodla Dairy's IPO.

Bata India Rises 6% Despite Fall in Net Profit (Views On News)

Jun 10, 2021

Here's why shares of the company rose even as profits declined 23.3%.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 18, 2021 (Close)


  • Track your investment in COLGATE with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks