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COLGATE PALMOLIVE (INDIA) LIMITED

COLGATE PALMOLIVE (INDIA) LIMITED

AGM held on AUGUST 29, 2001

CHAIRMAN'S SPEECH | QUESTION & ANSWER SESSION | DISCUSSION WITH MANAGING DIRECTOR


CHAIRMAN'S SPEECH

  • FY 2001 was marked by an overall economic slowdown, affecting consumer demand particularly in the rural areas. Despite sluggish market conditions and intense competition, Colgate has done well to record overall growth of 8% in Sales at Rs. 1,177 crores and 21% increase in Net Profit to Rs. 63 crores (including profit of Rs. 5.5 crores on sale of real estate).
  • Company generated record cash flow of Rs. 118 crores in FY 2001, up 110% from FY 2000. Given the healthy cash position and accumulated surplus from previous years, Colgate recommended dividend of Rs. 8.25 per share, including one-time special dividend of Rs. 4.75 per share.
  • Colgate’s vision is “To Be The Innovative Leader of With Its Brands Everyday In Every Home”. To realise this vision, company focused on following key strategies in FY 2001:
  • Driving Growth

  • Funding Growth

  • Becoming the Best Place To Work

  • Some of the initiatives taken by your company for driving growth included:

  • Creative Marketing CommunicationsFocused marketing activities are playing a vital role in “Driving Growth”. Company continues to develop compelling, creative and memorable ways of communicating with consumers. This backed by aggressive media support is maximising efficiencies and helping the company in reaching consumers more effectively.
  • The “Mera Colgate” campaign contemporarised the Colgate brand
  • “Talk To Me” Colgate Fresh Energy Gel advertising campaign launched this year with an innovative catch phrase – “Talk To Me” using the television, outdoor and online media to connect with the youth.
  • Launch of Colgate Actibrush company has recently launched “Colgate Actibrush”, battery powered toothbrush as a part of its effort to further strengthen leadership image by bringing in world’s best innovative products.

  • National Oral Health Programme - Initiated “Smile Through The Millennium National Oral Health Programme” to stress importance of preventive oral care amongst school children by providing logistics support including teaching kids, education materials and special dental health kits. The programmed aimed to cover 4 million school children over 100 towns across India.

  • Rural Distribution Expansion Programme – Rural India still presents huge opportunity for the company to grow the market. Even today, over 70% of population resides in rural areas. Colgate, therefore, continues to focus on expanding its rural distribution. Thrust of this market expansion programme commenced in FY 2001 under “Operation Jagruti”. This programme is in 2nd phase with massive rural sampling and seeding exercise for Colgate Herbal, targeted at non-users and infrequent users of dentifrices.

  • Managing Costs – essential component of Funding Growth is reducing overall total delivered cost of products thru various supply chain initiatives. Towards its goal of rigorously reviewing and driving down costs, company has recently upgraded SAP. This with management’s strong focus on each element of working capital enabled Colgate to achieve reduction of about Rs. 120 crore in net working capital during past 3 years period

  • Rationalisation of Fiscal Levies and Other Regulations - company appealed the Govt. to help them on following 3 key issues, which will help to improve oral hygiene in India.
  • To exempt the excise duty on toothpaste, toothpowder and toothbrush- though the Govt. exempted the toothpowder from excise duty, it raised the excise duty payable on toothpaste from 8% to 16% and levied excise duty on toothbrushes @ 4% to 16%. Company appeal to the Government to reconsider its decision since neither toothpastes nor toothbrushes are luxury items. They should, therefore, be exempted from excise duty to reduce cascading effect on their prices.

  • Local Sales Tax - Local Tax rates for these items in states like Kerala and Andhra Pradesh are as high as 20% to 23%. It is heartening note that the State Governments have agreed, in principle, to introduce State Value Added Tax (VAT) effective April 2002 to replace present varying rates of local sales tax. Since these items are daily necessities the State Govt. should exempt these products from VAT or levy a maximum tax of 4%.

  • Dereservation of items used for oral care -Toothpastes, toothpowders and toothbrushes are items reserved exclusively for the small-scale sector, depriving consumers of economies of scale. Paradoxically, these oral hygiene products manufactured by large scale industries around the world are freely importable in the country. Hence, need for reviewing government policy on reservation of daily necessities and lifting all restrictions so that they can be produced on a large scale allowing consumers to reap benefits of economies of scale.

  • Nepal Facility - Despite unfortunate bomb blast in Nepal, facility recorded impressive growth. Colgate India received dividend of 36.5% During FY 2001.

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QUESTION & ANSWER SESSION

  • To maintain its leadership position, company will continue to spend heavily on advertising. The toothpaste market is like the soft drinks market. Advertising as a percentage of sales is high due to intense competition.
  • In FY 2001 Colgate launched Cibaca Top targeting rural segment. However, even at such a low price, rural people are still not using this paste. About 67-70% people in rural India still use neem and other substances for cleaning their teeth. Company’s research shows that neem sticks do not do much for oral health as they only massage the gums, which even a toothbrush can do. To upgrade these users towards using toothpaste (which also generate demand for tooth brushes) and to penetrate deeper in rural India, company launched “Operation Jagruti”. It is also actively participate in local festivals.

  • Royalty (Rs. 2.7 crore in FY 2001) was paid to parent company on sale of soaps. The increase can be attributed to growth in sale of soaps. It is paid @ 5% on domestic turnover and @ 8% on exports.

  • Colgate (Nepal) pays royalty to Colgate (USA) whereas dividend to Colgate (India).
  • The company undertook a key employee retention programme. The salaries were equal to other benefits due to accommodation facilities provided to the employees and a one-time expenditure of Rs. 5 crore undertaken by the company.

  • Dividend paid in FY 2001 includes special dividend, which is not paid every year. Though the profits for FY2001 were Rs. 62.5 crores, company paid dividends worth Rs. 112 crores by utilizing the profits of the previous years, which resulted in lowering of Net worth as well as Capital Employed in FY 2001.

  • Colgate continues to be the No. 1 brand for past eight years. Company continued to be the market leader in toothpaste segment with 51% market share. In toothpowder and toothbrush, Colgate’s market share was 48% and 31% respectively. It is spending on advertising according to its market share & leadership position it enjoys and is conscious about what it costs.

  • Will continue to maintain a tight control over the working capital. Company’s goal has been to drive down all costs along entire supply / delivery chain through improved productivity. Saving in working capital is at record level right now. Company will be maintaining tight control on working capital.

  • Exports were mainly to countries such as Bangladesh, Nepal and SriLanka.

  • Colgate hopes to continue with its good performance in FY 2002 as well through new launches and aggressive advertising campaigns.

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DISCUSSION WITH MANAGING DIRECTOR

Discussion with Mr. Derrick Samuel, Managing Director

  • Company will achieve 8-9% growth in FY 2002 thru new product launches (areas not specified for competitive purposes) and aggressive marketing. When asked, what steps company is taking for deeper penetration did not specify any thing.

  • Company people are very tight lipped, did not disclose any thing.

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