Colgate Palmolive's first-quarter performance is a repeat of an alarming decline witnessed in the last two years. While competition from Hindustan Lever (HLL) in the dental-care segment has eaten into the company's market share, Colgate's efforts to step up promotions have depressed margins yet again. Add to that the worrying sign of a 6.96 per cent dip in sales to Rs 217.76 crore for the first quarter.

Analysts estimate that HLL could well have hacked off almost 6 per cent market share in the dental segment, taking Colgate's share to around 52 per cent. One telling statistic is that the 6 per cent drop in market share roughly translates into a consumption shift from Colgate to HLL by almost 3.9 million users.

Increased marketing investments, which have almost doubled during the first quarter, have taken a toll on the companys margins. Colgate Palmolive has stepped up advertising support for its products like Colgate Claciguard, Colgate Fresh Stripe Gel, Colgate DoubleProtection, New Longer Lasting Colgate Total and Axion, the surface-cleaning product. Thus, with expenditure increasing disproportionately to Rs 201.77 crore, the operating profit margins have dipped from 15.41 per cent to 7.34 per cent.

Colgate has taken some distinctive steps which include product launches in a phased manner to claw back its lost market share. Leading the charge would obviously then be Colgate's flagship brand, Colgate Dental Cream, with a new benefit proposition of double protection.

Another factor in favour of Colgate is the very poor penetration levels achieved in the oral-care segment, given the vast market size. But the fact remains that Colgate is totally on the defensive. In the interim, volumes growth will be offset by huge promotional expenditure for brand awareness, keeping profits under pressure.

Pidilite Industries

The flagship of the Parekh group of companies Pidilite Industries Ltd, having posted a growth of 6.26 per cent in sales turnover for the currentfiscal's first quarter, has actually slowed down, considering the 10.22 per cent growth in sales recorded for the year ended March 1998. This, however, should not be a cause for worry for the market leader in the adhesives industry, since the industrial slowdown shows no signs of picking up. In fact, this was why the company's annual results received the widespread appreciation it did. Moreover, it has also managed to maintain its operating-profit margin at a healthy 15 per cent.

The major reason for the healthy margin was the substantial fall in the prices of vinyl acetate monomer (VAM), its main raw material. VAM's price fall was a result of a drop in the international petrochemical prices, especially after the south-east Asian crisis. As Pidilite Industries did not have to pass on the benefit of the price fall to its customers for a majority of its products speaks of its strong brand image. Also, unexpected costs like the 4 per cent hike in import duty (30 per of the companys raw material is imported)can be passed on to its customers in a majority of the cases. As a result, the operating profit grew by only 6.5 per cent to Rs.14.59 crore.

The interest cost, as expected, went down slightly to Rs.2.5 crore. A lower interest-cost component was anticipated because the company had retired some of its high-cost, long-term debts last year. Depreciation charges on the other hand went up by around 10 per cent to Rs 2.3 crore, as a direct result of the new adhesive unit commissioned in Daman and the completed expansion of its polyurethane plant at Vapi. The 10 per cent rise in its bottomline to 7.4 crore is miniscule, when compared with the 65 per cent jump in net profit for the previous fiscal.

This, however, should not worry the company, as it has a 60 per cent market share in adhesives and is also the largest domestic manufacture of resins. The revival of the economy will see it back on its growth track. Fears of losing market share on account of cheaper international prices were also belied with the rupeesdepreciation.

The companys scrip, however, is trading at a low price-earnings multiple of 7.5. This low discounting is surprising considering its strong brand image and steady growth rate. Nevertheless, the scrip has not been hit so badly, and has outperformed the Sensex for most of the last two months.

Sri Vishnu Cement

Reports say BV Raju and associates, the promoters of Sri Vishnu Cement, have decided to acquire 20 per cent of the equity of Vishnu Cement. The reported reason is that persons acting in concert (PAIC) give non-disposal undertaking, and hence, the only option to acquire shares from them is through an open offer.

What seems to be the case is that promoters of Raasi must have given an undertaking that shares held by the company in Vishnu Cement will not be disposed off till the dues of FIs are paid or without obtaining their prior approval. If prior approval of the FIs is required before PAIC can dispose off the holding, then how did BV Raju's son-in-law, who is a PAIC by virtueof him being a relative as specified in schedule 1A of the Companies Act, managed to sell his stake to India Cements? Clearly, BV Raju is interested in taking over shares other than those held by the PAIC. In that case, the question of whether the PAIC can sell shares or not does not matter.

(With contributions by Percy Dubash, Mobis Philipose and Urmik Chhaya)