In 2009, the toothpaste market saw a sharp drop in the rate of growth, with sales growing at 6.9% compared with 14.5% in 2008. These numbers were shared by market leader Colgate-Palmolive (India) Ltd in an analyst meet after its annual results.
Colgate’s growth was affected, but not to the same extent. Its toothpaste sales rose by 11.4%, much higher than the market, while toothbrush sales rose by 14%, also higher than market growth of 10.7%.
Graphic: Yogesh Kumar/Mint
When companies making personal and home care products used higher inflation as a pretext to hike prices, a few such as Colgate showed restraint and focused on volume growth instead. That strategy worked and Colgate’s share rose in 2010, despite spending a lower proportion of sales on advertising.
Colgate’s advertising and promotion (A&P) as a percentage of sales fell by 70 basis points to 15.3% in fiscal 2010. In the March quarter, however, Colgate’s A&P ratio went up by 68 basis points, and, thus, the trend may get reversed in fiscal 2011. For the full year, Colgate’s sales rose by 16%. One basis point is one-hundredth of a percentage point.
In the March quarter, Colgate’s operating profit margin rose sharply, due to lower material costs. Some of this may be attributed to the mergers it is undertaking of subsidiaries, used for manufacturing products. Earlier, it would buy products from these firms, but after merger they get reported as raw material purchases, resulting in lower costs.
On the flip side, since the assets get transferred to its books, its depreciation costs will increase. In the March quarter, its depreciation went up to Rs20 crore from Rs6 crore in the year-ago period.
These mergers will result in some fluctuation in some heads of expenses in its stand-alone financials, but net profit growth is unlikely to get affected. In the March quarter, its net profit rose by 48%.
The overall picture for Colgate looks bright. It has gained market share in toothpaste and toothbrushes, but not in toothpowder, grew ahead of the market in fiscal 2010 and its profits have risen, too.
More importantly, in 2009, the trend of rising toothpaste consumption picked up pace. While toothpowder penetration fell, that of toothpaste increased, which will see majors like Colgate benefit.
The company increased its distribution reach, especially in rural areas, to reach this growing market. These trends augur well for the longer run.
But the near to medium term may hold some uncertainties. Hindustan Unilever Ltd’s efforts to regain volume growth are paying off, which may affect its nearest rivals. In the March quarter, Colgate’s volume growth levelled with that of the market.
Procter and Gamble is planning to launch its Crest toothpaste brand. Its strategy to take a chunk of the market and whether it sparks off a price war will worry investors more in the near term.
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