A competitive market may have prevented oral care major, Colgate, from earning better realisations in the December 2008 quarter, but its brands remain popular, as can be seen from the 14 per cent volume increase in toothpaste.

In fact volumes were higher than in the six months to September 2008 and that helped the company maintain market share at just under 50 per cent. That means the decision not to take price increases has paid off, though the growth in volumes could taper off to around 10 per cent as the base increases.

While the Rs 1,538 crore (Rs 15.38 billion) firm's sales growth of 13.3 per cent in the December 2008 quarter may have been lost some momentum after the 16 per cent that it hit in the June quarter, the fact that the top line has now grown at above 12 per cent for 14 quarters in a row is quite creditable. Not that there is reason to believe the trend could change given that the market for toothpaste and toothbrushes in the country  is hardly saturated.

It's possible there could be some downtrading by consumers in the near term, though they may switch to its own brand, Cibaca. Over the longer term, however, Colgate  is in a good position to cash in both on the increasing affordability in the country and the fact that consumers are upgrading from toothpowder to toothpaste.

While in the September 2008 quarter the operating margin(opm) had come off by 220 basis points to 16 per cent due to higher spends on advertising, this time around, the opm was up 60 basis points at 20.9 per cent with the company spending much less on  advertising.

With competition from Hindustan Unilever and Dabur [Get Quote] only likely to increase, Colgate will have little option but to earmark significant amounts for promotions, as it launches new products and variants. So, unless revenues grow at 15-16 per cent, margins will once again be under pressure.

At the current price of Rs 431, the stock trades at around 18.5 times estimated 2009-10 earnings and is not too expensive, given that profits are expected to grow by about 15-16 per cent over the next couple of years.