Colgate-Palmolive

Colgate-Palmolive India, an Rs 9,280 crore corporate, started its India journey way back in 1937 when its best-known product Colgate Dental Cream, was put on sale from the back of a pushcart.

Since then, it has come a long way, having built up a pan-India presence, including an over 4 million strong retail outlet strength to dominate the Rs 3,100 crore Indian toothpaste segment, where it commands more than a 50 per cent market share.

But, the company has been facing stiff opposition from a number of competitors, both large and medium sized in the form of HUL and Dabur. Yet it has never taken a backward step and boasts of a 46.6 per cent market share of the oral care segment — toothbrush (37%), toothpowder (45.8%) and toothpaste (50.2%).

With the company already having a very strong market presence, it requires no extra money to splurge on control and domination exercises to maintain marketshare, and that means it is debt free. The company's RoCE and return on equity (RoE) too are at a comfortable 150 per cent.
A very powerful financial position also lends the company strength to pursue goals confidently — there is a lot more of the market left to tap. Toothpaste penetration in the country was 57 per cent in 2008, leaving virtually half the population uncovered.

However, tangible gains may be forthcoming, with the population upgrading from the toothpowder to toothpaste category. But there is certainly room to improve on the per capita consumption aspect. While in China the same is 255 grammes per year, in India it is just over 100.

To battle the economic slowdown in 2008, the company raised prices. There was an immediate positive gain as it helped it to log a very strong earnings growth. In the June quarter, the company's sales growth was clocked at 15 per cent and net profit at Rs 102.78 crore. The company's net profit jumped by 43 per cent when compared to that of last year's — in March quarter net profit growth was 38.6 per cent.

The effect of cost cuts was not negative even on volumes. The company has reported an overall year-on-year (YoY) growth of 12 per cent — largely driven by the good performance of brands like Colgate Dental Cream, Active Salt, Max Fresh and Cibaca. Expectations are that volume growth in FY2009-11E will be in the range of 11-12 per cent.

In the current season of worries, Colgate-Palmolive does not even have to fear what the gods are going to deliver in the shape of the monsoon. It is virtually free of the shackles of the monsoon courtesy its product line.

With most factors being positive, margins are expected to expand handsomely. As such for FY2009-11E the company is expected to post a topline growth of above 14 per cent.
With its market price hovering around Rs 644, the stock is trading at 22.2x FY2011E revised EPS of Rs 29.