Assignment

On

Swot analysis of colgate

K
artik sharma
MBA
(Gen)

Roll. No.= 127

Sec=B
 Contents

Sr.No. Subject Covered Page No.

1 Introduction 4

2 The journey over the 5

years

3 Strength 6

4 Opportunities 7

5 Weaknesses 8

6 Threats 9

7 Concern 10

8 What to expect ? 11

1. Introduction :

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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
manufacturing facilities for flavor and other ingredients,
which yield significant cost savings. It has also set up a

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world-class facility for manufacture of Di-calcium
Phosphate, a key ingredient in toothpaste.

2. The journey over the years:

(Rs m) FY0 FY0 FY0 FY0 FY0 CAG 9mFY

2 3 4 5 6 R 07
Sales 10,8 11,7 11,6 9,47 9,39 -4% 7,242
96 69 09 4 2
Other Income 228. 295 310 358 299 7% 217
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Expenditure 10,2 10,8 10,5 8,17 7,92 -6% 5,995
31 01 44 0 8
EBDIT 665 968 1,06 1,30 1,46 22% 1,247
5 4 4
OPM % 6.1% 8.2% 9.2% 13.8 15.6 ~ 17.2%
% %
Net profit after 518 625 698 887 1,08 20% 809
tax(loss) 0

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
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%.

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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.

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

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 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 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.

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 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

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

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 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.

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

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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
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),

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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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