Colgate Palmolive Equity Research Report – Part II

 

In my previous post, I covered business model and products category part of Colgate Palmolive.

In this post, I am going to cover business and financial performance of the company in detail.

Business Performance of Colgate Palmolive

In one sentence, Colgate Palmolive manufactures oral care products like toothpastes, tooth powder and toothbrushes and also produces personal care and dentist products.

Colgate Palmolive’s business which largely caters to oral care market in India, is easy to understand and within my circle of competence.

Colgate Palmolive enjoys certain level of business every year. This is because there are reasons like opening up and expansion of the economy, rising income levels and changing consumer beliefs and behaviors have led to an increase in consumption.

As per a study conducted by Booz and Company, FMCG sector is expected to grow in the range of 12-17% upto 2020.

Due to high disposable income, rise in per capita income and change in lifestyle demand for branded products is increasing in Urban as well as Rural India.

Since Colgate Palmolive operates in FMCG sector which is non-cyclical in nature, there’s certainty of business in near future.

Colgate Palmolive has got enormous moat through its excellent distribution network and very strong brand.

Colgate is the only brand to be in the top 3 consistently for last 10 years. It is voted as ‘”The most trusted FMCG brand” across all brands and categories.

Colgate Dental Cream through its unbeaten distribution network is the largest distributed product in the Toothpaste market, available in 4 Million+ stores covering 96%+ urban and rural market.

One more pointer—Return on Equity is well above 100%+ in last 5 years and above 40% for the last 10 years. This shows the company has got enormous moat.

Look at the Free Cash Flow graph below of Colgate Palmolive. Increasing operating margin and high return on capital employed has propelled this increasing trend in Free Cash Flow(FCF).

 

 

Colgate Palmolive Free Cash Flow
Colgate Palmolive Free Cash Flow

Since the Colgate Palmolive enjoys great moat, it has excellent bargaining power against its suppliers and buyers, though competition from Hindustan Unilever poses a threat.

This was about operating and business performance of Colgate Palmolive. In my next part of Colgate Palmolive Equity Research Report, I will cover financial performance of Colgate Palmolive.

 

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