Colgate-Palmolive Pakistan Ltd (COLG), one of the leading multinational companies started its operation in Pakistan during 1985. Lakson Group accrued the license from the Colgate-Palmolive Company, USA to market Colgate-Palmolive products in Pakistan. The company is one of the top manufacturers of personal care and consumer products within the country.
Currently, the firm is engaged in the production and marketing of some of the leading international brands of oral and personal-care products. Furthermore, the company brought few of the world's most trusted household names such as Colgate Toothpaste and Palmolive Naturals to the Pakistani market. The company's principal class of the product comprises Personal Care, Home Care, etc. Colgate Palmolive's sales of Home Care accounted for 75 percent of its total sales of all product classes.
Pages from historic performance:
The fortune of Colgate-Palmolive Pakistan Ltd (COLG) is on the rise since FY 10. However, this phenomenon is not unique to this specific company as the entire FMCG sector saw a boost during that period. With its ups and downs, the party is still on at Colgate.
During FY12, the company saw its bottom line score Rs 1.62 billion versus Rs 1.17 billion recorded in FY11, which is a 39 percent increase in the year-on-year comparison. The company was able to achieve these milestones by strategically spending money on effective in-store promotions and advertisement as well as through good distribution networks. These efforts allowed the brands of the company to achieve a continuous volumetric growth. During this period, the company was also involved in the cost-saving measures which enabled to offset the higher input prices hindering most other manufacturers.
FY13 was not as good a year for the company which saw a 9 percent growth in revenue. Additionally, the issue of adverse exchange rate movement caused the company to buy the raw material at higher prices which in return decreased the firm's gross profit margin to 22 percent, a 100 basis point decrease.
Colgate-Palmolive invested significantly during this period in plant and machinery. The company also saw major problems with regards to energy woes and relies heavily on producing in-house energy. These costs become a heavy burden on the margins of the company. All of this decreased the bottom line for the company in FY13 by 2 percent in the year-on-year comparison.
Performance in FY14:
FY14 brought blessings back to the top line of the company, and the turnover clocked in Rs 29.4 billion which is a 15 percent year-on-year growth. The bottom line has improved from Rs 1.589 billion to Rs 1.69 billion. Colgate took advantage of stability in exchange rates and appreciation of the rupee against the US dollar and contributed further to company's bottom line. The margins however, remained almost flattish.
Colgate is putting a significant amount of money towards brand development; this is evident from their investment in brand building which they have done continuously in the last five fiscal years. During FY 14, the company rolled out shopper and customer to increase engagement at relevant touch points to drive market share. Although, the company is a leader in the oral and dental care sector, but it is seeing a massive competition in Palmolive soap by the influx of imported soaps at a price much lower than the raw material cost of manufacturing.
9MFY15 performance:
Colgate-Palmolive (Pakistan) Ltd has recorded a decent performance during the nine months of FY15. The company has registered a growth in the top line by 8 percent in the year-on-year analysis. The bottom line has also increased to 32 percent.
Profitability margins have seen a significant increase in the nine-month period. The declining commodity prices globally and lower raw material costs helped the gross profit margin to increase 200 basis point from 9MFY14. In addition, the company has seen its net profit margin improved to 100 basis points in the year-on-year comparison. Just like many FMCG companies, Colgate also took advantage of stable currency movements and the bottom line benefited.
Similar to FY14, the key growth driver for the firm has been the Oral care segment which again witnessed a significant surge due to better advertising and promotion activities. Selling and distribution expenses increased by 16 percent, year-on-year, in 9MFY15 due to higher spending in brand polishing.
KSE vs. Colgate-Palmolive Limited:
Colgate-Palmolive Limited has been listed at Karachi Stock Exchange with market capitalisation around Rs 71.93 billion and Rs 40.8 million is the free float.
Outlook:
Since last five years, Colgate-Palmolive has invested significantly into brand and product innovations, which translated into strong market penetration.
The company has also invested heavily on the betterment of the distribution network which is needed because of the stiff competition in the market.
The management should focus on aggressive expansion backed by continuous cost rationalisation, wherever possible.
===============================================================
COLGATE PALMOLIVE (PAKISTAN) LTD (RS '000)
===============================================================
Rs (mn) 9MCY14 9MCY15 YoY
===============================================================
Turnover 21,589 23,414 8%
Cost of Sales 12,366 12,588 2%
Gross Profit 4,705 5,753 22%
Selling and Distribution 2,688 3,116 16%
Administration Expenses 161 197 22%
Operating Expenses 149 191 28%
Other Income 104 176 68%
Profit from Operation 1,811 2,425 34%
Finance Cost 14 15 11%
Profit before Tax 1,797 2,410 34%
Taxation 542 746 38%
Profit After Tax 1,256 1,664 32%
Gross profit margin 22% 25% UP 300 BPS
Net margin 6% 7% UP 100 BPS
---------------------------------------------------------------
Source: Company accounts
===============================================================