Colgate Palmolive is among the very few multinational stocks going cheap at Rs 170 at an attractive price earning multiple of around 60. This is one of the rare FMCG stocks to be left out of the spotlight in the past couple of months. A sliding market share in its key oral dental care business, a large equity base and a dismal financial performance have all dented badly into the stock's performance on the bourses.Many would have written off this FMCG major after a lacklustre performance in the recent past. The performance slowed down with the competition intensifying with the other major player, Hindustan Level taking Colgate head-on and winning the first few rounds.
The markets too have given the thumbs down to Colgate with the scrip trading in the range of Rs 165-200 in the past few months. The scrip has failed to look up and bounce back to its high of Rs 275 level attained in August last year.
Colgate is expected to report its worst-ever performance for the year ended March 1999. The writing hasbeen on the wall with the nine month performance indicating the shape of things to come. Although the company managed to sustain its turnover, the bottomline has taken a severe beating in the last financial. For the first three quarters, net profit at Rs 27.5 crore against Rs 80.07 crore achieved in 1997-98. Higher advertisement and marketing cost owing to the launch of `Total', charging off of VRS compensation and aggressive pricing of new products has taken its toll on the company's performance. The company charged a sum of Rs 2.3 crore in the third quarter to December being payments towards VRS.
The main reason for this decline in profitability and sales growth is its declining market share in the dental care segment. Though Colgate continues to be a dominant player in the Indian dental care market with a 52.7 per cent market share, the company has been losing out to its main competitor HLL by around 2-3 percentage points in the last one year.
But thanks to the new launches, the company is certainly ontrack to retain its lost glory and retain its over-all market share in the dental care segment. This would certainly help the company to arrest the declining market shares, both in toothpaste (60 per cent) and powders (40 per cent).
The company has been severely affected by competition and the future will depend on the new product launches and its aggressive marketing strategies. and its short term revival will depend on the launch of its new products -- Colgate Sensation and Total.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
Printer-friendly page
