Colgate-Palmolive Pakistan Limited (PSX: COLG) was established as a public limited company in 1977 with the name National Detergents Limited. The name was later changed to Colgate-Palmolive (Pakistan) Limited in 1990 when the company entered into a Participation Agreement with Colgate-Palmolive Company, USA.
The company’s main business is to manufacture and sell detergents, personal care and other related products.
Shareholding pattern
As of June 30, 2020, the company is largely held by its associated companies, undertakings and related parties with close to 59 percent shares held under this category. Of this, SIZA Services (Private) Limited is a major shareholder. About 35 percent is held under “others” category whereas directors, the CEO, their spouses and minor children collectively hold about 5 percent of the shares. Within this category, Mr. Iqbal Ali Lakhani, the Chairman and Director of the company, holds nearly all the shares, at 4.85 percent.
Historical operational performance
For the last decade, Colgate-Palmolive has experienced consistently increasing topline, albeit at varying rates, whereas profit margins have been stable over the years, with gross margins hovering around 31 percent on average and net margin averaging close to 10 percent.
In FY15, the Colgate-Palmolive saw revenue increasing by close to 5 percent. While the oral care category continued to post strong growth in terms of both value and volume, Palmolive bar soap also contributed to the increase in revenue, more so in the second half of the year as promotions helped. Moreover, different variants were made widely available that supported volumetric growth.
Year on year cost of production as a percentage of revenue also reduced that allowed gross margins to improve from 28 percent in FY14 to a little over 31 percent in FY15. This was attributed to lower oil prices that drove down costs related to raw materials and freight. Selling and distribution costs witnessed an increase due to media and promotion expenses, however, simultaneously there was also a rise in other income coming from realization of profit on short term investments. The net result was a rise in net margin to 9 percent.
Revenue growth slightly increased in FY16 to a little over 6 percent. With clear strategies in place, oral care division of Colgate-Palmolive continued to lead the market. In addition, home care, also performed well. However, this category also saw intense competition and price wards that made the company align its brand. During the year, it re-launched two of its detergent brands that contributed to the category’s growth. Palmolive bar soap also posted double digit growth owing to marketing. On the other hand, cost of production as a percentage of revenue further well to claim almost 64 percent of the revenue. This decline was again attributed to lower oil prices that helped to keep raw material costs utilities and freight cost lower. The effect of this trickled down to the bottomline as net margin increased to almost 11 percent.
During FY17, Colgate-Palmolive saw its topline growing by close to 14 percent. Oral care remained on its growth momentum as it launched new variants and campaigns. The company widened Palmolive shampoo’s coverage to national level, in addition to supporting it with marketing campaigns. The expenditure on marketing and promotions was reflected in the rising selling and distribution costs that rose for the third consecutive year, as a percentage of revenue. Net profit margin, at 11 percent, however, grew only marginally as costs increased more or less corresponding to the rising revenue.
In FY18, at close to 7 percent, topline growth was relatively subdued in comparison to that seen in FY17. While Oral care maintained its leadership, personal care division also gained momentum as it witnessed double-digit growth, with emphasis on shampoo and soap bars. Detergent powder category saw intense competition with entry of new, local players with the latter spending immensely on media and promotions.
On the other hand, cost of production as a share of revenue saw an increase. This was due to rupee devaluation against US dollar in the second half of FY18. Moreover, international oil prices also increased that further adversely impacted the gross margins. However, operating and net margin saw a marginal decline due to support from other income in addition to a lower tax expense.
During FY19, Colgate-Palmolive witnessed an 18 percent growth in its revenue. This was attributed to both, an improvement in volume as well as selling prices. Within the Oral care, the company managed to grow its market share, while local production of Palmolive shampoo also contributed to margins. Fabric care category, however, faced a lot of competition particularly from the unorganized sector.
Despite the double-digit growth in revenue, profit margins could not be lifted due to rise in the cost of production due to currency devaluation followed by commodity prices increases. Thus, net margin reduced to 9.5 percent.
Recent result and future outlook
Colgate-Palmolive saw another year of double-digit growth in topline at nearly 18 percent during FY20 coming from volumetric growth as well as price adjustments in all categories. Particularly in the second half, growth in topline was due to consumers panic buying hygiene products given the outbreak of pandemic Covid-19. However, Colgate-Palmolive did not lose out on the higher demand, and maintained its supply chain to meet the demand. Cost of production remained flat that also kept gross margins stable. Operating and net margin, however, increased due to other income that came from higher interest rates.
Although the company operates in the consumer goods hygiene category, that had comparatively fared better compared to other sectors during the pandemic, but it foresees challenging economic recovery while fearing a second wave of the pandemic.