Colgate-Palmolive (BOM:500830)


Colgate was promoted by Colgate-Palmolive USA, the parent who has a 51% stake in the Indian subsidiary. The company manufactures and markets products for oral care, personal care and household care. Oral care products contribute ~ 90% to total revenues. In this core business, Colgate dominates, enjoying a 52% market share in toothpastes and about 34.9% in toothbrushes in India. Other products include personal care products like shower gels, shower creams, toilet soaps, liquid handwashes, and shaving creams mostly under the Palmolive brand. In the household segment, Colgate markets dish-washing soaps under the brand name Axion. The company sold its Nepal subsidiary. It amalgamated Advanced Oral Care Products and Professional Oral Care Products (Goa subsidiaries) and acquired 75% stake in CC Healthcare Products for a consideration of Rs 19.3 m.

The company achieved a 15% YoY growth in the topline driven by sales across its product categories for FY09. The operating margins remained flatish at 17% while the bottomline grew by 21% YoY.

The per capita consumption of toothpaste in India is amongst the lowest in the world, and being the No.1 player in this category, the company is poised to benefit from increased consumption going forward. However, in our view, the prospects are still too leveraged on one product. However, the parent globally, has decided to close a third of its 78 manufacturing units and India could be a favored destination for outsourcing toothpaste. Currently, the China plant produces over 900 m toothbrushes per year and supplies to over 60 Colgate subsidiaries worldwide. The parent has a 5-year plan of cutting down toothpaste and bar soap manufacturing locations to 15 each and toothbrush manufacturing locations to 8 globally. This as mentioned before, could benefit the subsidiary in India.

(Rs m) 4QFY08 4QFY09 % change FY08 FY09 % change
Net sales 4,076 4,722 15.80% 15,367 17,708 15.20%
Expenditure 3,393 3,746 10.40% 12,427 14,193 14.20%
Operating profit (EBDITA) 683 977 42.90% 2,941 3,515 19.50%
EBDITA margin (%) 16.80% 20.70% 19.10% 19.90%
Other income 37 38 2.70% 203 227 12.00%
Interest 4 1 (63.90%) 14 11 (23.60%)
Depreciation 55 64 16.50% 198 230 15.70%
Profit before tax 662 950 43.40% 2,931 3,502 19.50%
Extraordinary item () 49 10 49 386.00%
Tax 105 131 24.00% 603 551 (8.70%)
Profit after tax/(loss) 557 771 38.30% 2,317 2,902 25.30%
Net profit margin (%) 13.70% 16.30% 15.10% 16.40%
No. of shares (m) 136 136 136 136
Diluted earnings per share (Rs)* 21.3
Price to earnings ratio (x)* 22.2
* Trailing 12-month earnings
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