Colgate continues to cash in on the growing Indian market--- a strong brand presence has helped the company grow toothpaste volumes by over 15 per cent in the March 2009 quarter. It’s interesting that the Rs 1,695 crore Colgate is posting such strong volume numbers even after all these years and indicates that the toothpaste market in the country is far from being fully penetrated. Industry watchers believe penetration could be somewhere close to the 60 per cent mark.
It’s also interesting to note that low price products continue to account for more or less the same share of Colgate’s revenues that they did last year, once again reflecting the growing purchasing power in the economy. With a value market share of just over 52 per cent in toothpastes and just under 49 per cent in toothpowders, Colgate’s dominance of the oral care market is undisputed.
Also, with input costs coming off, the company may not really need to take any more price increases in the near future so to be able to sustain profit margins—it had increased prices marginally in April.
In fact, the company posted a smart rise of 340 basis in operating profit margins in the March quarter to 16.7 per cent. Of course some of this came from lower media spends---down 340 basis points-- and some from lower input costs. While earnings grew a remarkable 39 per cent in the March quarter, they are expected to grow by about 15-17 per cent in the next couple of years. At the current price of Rs 480, the stock trades at 19 times estimated 2009-10 earnings and is reasonably valued.