In the September 2006 quarter, Colgate-Palmolive has reported another quarter of strong sales growth, but its quarterly results were adversely affected due to VRS payments.
As a result, the company's operating profit plummeted 94.8 cent y-o-y to Rs 2 crore (Rs 20 million) in the September 2006 quarter compared with 15.1 per cent growth in net sales to Rs 320.01 crore (Rs3.2 billion).
However, if the VRS expenditure incurred for the staff at its manufacturing facilities at Sewri in Mumbai is excluded, the company's operating profit grew an impressive 57.9 per cent y-o-y to Rs 60.8 crore (Rs 608 million).
Its operating profit margin (excluding VRS payments) also jumped a huge 520 basis points y-o-y to 19 per cent in the last quarter. In the June 2006 quarter too, the company's operating profit margin improved by 105 basis points y-o-y to 12.95 per cent.
Meanwhile, the company's toothpaste volumes grew 10 per cent y-o-y in the last quarter, thanks to improved offtake for its recent launches such as Colgate Advanced Whitening. The company had hiked prices for its toothpaste portfolio by 4.4 per cent in June 2006, in order to offset rising costs.
Also, its toothbrush volumes surged 26 per cent y-o-y in the last quarter. The company's overall sales volumes had grown 11 per cent in the June 2006 quarter.
Despite strong growth in the core oral health business in the last quarter, the stock has substantially under-performed over the past three months - it has remained more or less flat compared with 15 per cent gain in the Sensex.
Also, a surprise reduction in its advertising and sales promotion budget in the last quarter, helped to minimise the rise in other expenditure.
Going forward, analysts expect a reduction in the company's operational costs, given the high-cost nature of its Sewri operations, as its new manufacturing plant at Baddi in Himachal Pradesh is understood to have stabilised.
However, with the stock trading at 27 times estimated FY07 earnings and 22 times FY08 earnings, Colgate is expensive.
