Stock Review: COLGATE PALMOLIVE INDIA

Colgate Palmolive India has posted robust volume growth in January-March, but margins weakened due to rise in raw material cost and packaging charges.

The oral care major's fourth quarter net sales increased 12.6% from a year ago, but sequentially it is lower than previous four quarters. Operating profit and net profit were flat from a year ago. Raw material cost was 41% of net sales in the fourth quarter compared with 30% in the previous year. The company spent 13% of net sales towards selling and administrative expenses for its brands compared with 16% a year ago.

The company reported a marginal rise in market share for Colgate toothpaste during the fiscal, but lost share in toothpowder and toothbrush. Products in mouthwash category recorded 22% volume growth. In fiscal 2010-11, sales growth was lower than previous two years despite increase in investments towards brands.

Gross margin was flat due to decline in operating profit and net profit. The company generated . 385 crore cash from operations in last fiscal, lower than . 397 crore in the previous year.

The company experienced a slowdown in pace of sales growth. High raw material cost dented margins in the past two quarters of the fiscal. Its overdependence on flagship brand Colgate could pose a major risk as any damage to the brand will hit growth. Oral care products constitute 96% of its total revenue under Colgate.

The stock has outperformed benchmark Sensex since the middle of April. It is trading at a trailing price-to-earnings ratio of 30. Investors can remain invested in the stock, but should keep tabs on performance in coming quarters.