Assignment

On

Swot analysis of colgate

Kartik sharma

MBA (Gen)

Roll. No.= 127

Sec=B

Contents

Sr.No. Subject Covered Page No.

1 Introduction 4

2 The journey over the

years

5

3 Strength 6

4 Opportunities 7

5 Weaknesses 8

6 Threats 9

7 Concern 10

8 What to expect ? 11

3

1. Introduction :

A name synonymous with the Indian oral care industry,

Colgate (COLGd.BO, news) , is the undisputed market

leader in toothpastes with over 45% share in the Rs 21 bn

(90,000 TPA) oral care segment. The company's parent

has a presence in over 200 countries worldwide. In

India, Colgate ranks No.1 in top of the mind recall in many

consumer surveys. Let's take a look at the company's

journey over the years and what's in for it in the future.

Promoted by Colgate-Palmolive USA, the parent operates

through its 51% subsidiary and has a presence in India

since last 50 years. The company's flagship product,

Colgate Dental Cream is the largest selling toothpaste in

India, with an estimated market share of over 30%. The

company acquired Hindustan Ciba Geigy (Cibaca) in the

year 1994, which helped it increase its market share. The

company also has a significant marketshare in the

toothbrush category. This and shaving brushes accounted

for 10% of its FY04 revenues.

The toothpaste segment can be divided into two broad

categories: White's, which accounts for a dominant share

of the Indian oral care market. Gels are estimated to be

only about 15% plus of the market. Colgate is

considerably backward integrated. It has captive

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manufacturing facilities for flavor and other ingredients,

which yield significant cost savings. It has also set up a

world-class facility for manufacture of Di-calcium

Phosphate, a key ingredient in toothpaste.

2. The journey over the years:

(Rs m) FY02 FY03 FY04 FY0

5

FY0

6

CAG

R

9mFY

07

Sales 10,8

96

11,7

69

11,6

09

9,47

4

9,39

2

-4% 7,242

Other Income 228.

9

295 310 358 299 7% 217

Expenditure 10,2

31

10,8

01

10,5

44

8,17

0

7,92

8

-6% 5,995

EBDIT 665 968 1,06

5

1,30

4

1,46

4

22% 1,247

OPM % 6.1% 8.2% 9.2% 13.8

%

15.6

%

~ 17.2%

Net profit after

tax(loss)

518 625 698 887 1,08

0

20% 809

From the above table, we infer that although topline has

shown a degrowth of 4% on a compounded basis over the

5 year period, bottomline has grown at a good 20% rate in

the same period. The company has been able to curtail its

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expenditure, which went down by 6% during the period

under consideration. Operating margins have been

increasing YoY and in 9mFY07 touched a peak of 17%.

The key reason for a significant improvement in operating

margins over the years is the reduction of advertising

expenditure (see chart).

The company has lost significant market share in

toothpaste that had peaked at 65% in FY95, as compared

to 45% plus today. Most of this has been lost to HLL and

smaller players like Dabur and Anchor.

3. Strength :

As per our estimates, 12.2% of the total world population

lives in rural India. Currently, only a small portion (about

15%-20%) of region has been tapped. Although, expansion

in rural areas requires huge investments, it is a market

that cannot be overlooked and has huge potential. To put

things in perspective, the per capita consumption of

toothpaste in India is only 82 gms, as compared to 262

gms for Thailand, 376 gms for Mexico and 518 gms for

USA (Source: Colgate, Equitymaster Research). In India,

urban per capita consumption is 153 gms whereas rural

consumption is a mere 38 gms.

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1. qualified sales staff-as the company today is dealing

with the best available staff.all having good selling

techniques.

2. strong financial back up

3. white gel-it provides maximum freshness in mouth

and also helps in fighting against bacterial actions

4. white crystals provides instant freshness.helps in

removal of plaque

5. maximum protection-it contains sodium fluoride

helps in prevention from exposed root cavaties.it

provides 12hour protection.helps in prevention of

tender gums.

4. OPPORTUNITIES :

1. Large investment-as they are easily available with

large investments due to their past sales,they can

easily fulfil their financial needs or can make huge

investments so they earn the biggest opportunity.

2. Intensive distribution-product they are producing is of

daily usage nature or the daily usable commodity so

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the company is using intensive distribution which

provides opportunity for the company that the is

available at each and every shop and due to this the

sales increases.

3. Stable economic conditions-company is having stable

economic conditions which helps in boosting the

growth of the product.

4. technology-the technology factor being used by

colgate company is at its BANG.

5. globalisation-today the world is becoming a global

village,so taking it as an opportunity we can

considered it to be a prospect

5. WEAKNESS :

1. Giant competitors like pepsodent and close up..

The company has been facing immense competition

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from organised as well as unorganised players. HLL is

the closet rival of Colgate with a share of 34% with

its Pepsodent and Close-up (gel where it has a lion's

share) brands. The latest entrant in the organised

sector is LG that has ventured into the FMCG market

and launched premium consumer products across 8

categories including toothpastes, shampoos, soaps,

detergents, etc. Also, there has been speculation

from sometime now that P&G (its worldwide rival)

would debut its billion-dollar-plus toothpaste brand

Crest in India. This could intensify competition in the

segment.

2. high taxes-due to highly taxation policy the prices of

the tube rises which sometimes creates a hurdle in

the growth of the company.

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6. THREATS :

1.chances of failure-as the company produces different

types of paste in colgate brand like in gel form or in

crystals form or the orange gel.so the product is new to

the market may be the people accept the new taste in

toothpaste field or may be they may reject it.company

has no idea of success.it disturbs the whole companies

management.

2.competitors-many companies are there to compete

the same product in the market.there is a high rate of

competition in the market.there are many types of

brands of paste easily available in the

market.international companies are also participating in

the same process as they are also launching many

many brands of the same product in the same

market.like china offering their product at cheaper price

which also acts like a hurdle in the growth of companies

growth.

3.sometimes due unstable political conditions company

changes its plans n policies as the different government

provides different subsidies.whichever government

rules we have to act accordingly.

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7. Concerns :

The company has high reliance on a single category (Oral

Care), which accounts for 94% of its sales and 98% of its

profits (FY04). A large part of the company's product folio

consists of premium products, which do not have a large

potential market in India. This is evident as new launches

by the parent in India have been much lower than other

markets. In the last couple of years, the company's topline

has stopped growing and in order to achieve growth,

Colgate cut prices of its products by an average 17% in

April 2003 (Source: Company Annual Report). The

company has been able to increase its margins by

continuously cutting advertising expenses, which cannot

go below a certain point, owing to its single product

dependence.

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8. What to expect ?

At the current price of Rs 180, the stock trades at a rich

valuation of 23x annualised 9mFY05 earnings and market

cap to sales of 2.6x. Though per capita consumption of

oral care products in India is poor compared to even other

developing nations, it is essentially a long-term story. In

our view, the prospects of the company are still too

leveraged on one product, which is facing intense

competition in the market. With P&G's intended entry in

the segment, things could get rough in FY06 and FY07.

However, one key thing that could to keep the earnings

expanding in FY06 is that Colgate is setting up a new

facility in the tax free zone of Baddi (Himachal Pradesh),

which will start commercial production in April '05.

Another key thing investors need to consider is that

globally, the parent plans to close a third of its 78

manufacturing units and India could be a favored

destination for outsourcing toothpaste. Currently, the

China plant produces over 900 m toothbrushes per year

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and supplies to over 60 Colgate subsidiaries worldwide.

The parent has a 5-year plan of cutting down toothpaste

and bar soap manufacturing locations to 15 each and

toothbrush manufacturing locations to 8 globally. For

Colgate India, whose exports stand at Rs 176 m (FY04),

which is only 2% of sales, this could be a good trigger in

the long term.

In conclusion, the company is likely to see continued

bottomline expansion over the next one year owing to tax

benefits and operating leverage but revenue growth will

remain challenging. As of now, Colgate is not among our

top picks in the FMCG space.

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