In our previous post we mentioned 3 companies (Colgate – Palmolive, Britannia and Nestle) which gave excellent returns in the past.
Here we will try to explain the rationale behind these excellent returns.
All 3 companies are leaders in their segments.
1) Colgate – Palmolive’s market share in INR 10,000 Crore toothpaste market stands at 53.4%.
2) Britannia Industries Ltd. – 2nd largest biscuit maker in India which possess 32% market share in a highly fragmented Indian Biscuit Market.
3) Nestle India – Commands over 60% market share in Indian Noodles market and 50% market share in Indian Coffee Market!
Simplified business model and excellent corporate governance rides them on growth path.
Now let’s see their financial parameters.
- 5-year Average ROE* – 41.39%.
- Debt Free
- Average 5 years Revenue Growth – 10.61%.
- Average 5 years EPS* – Rs. 58.90
- 5-year Average PAT* Growth – 34.35%
- 5-year Average Operating Margin* – 12.61%
- 5-year Average ROE* – 35.08%.
- Average 5 years Revenue Growth – 4.32%.
- Average 5 years EPS* – Rs. 104.06
- 5-year Average PAT* Margin – 10.69%
- 5-year Average Operating Margin* – 17.70
- 5-year Average ROE* – 61.72%.
- Debt Free
- Average 5 years Revenue Growth – 6%.
- Average 5 years EPS* – Rs. 29.60
- 5-year Average PAT* Margin – 14.71%
- 5-year Average Operating Margin* – 20.78
All three of them not only stands out as a market leader but are also great example of healthy financials.
Appendix ROE - Return on Equity: It reflects a company's ability to generate profits from its shareholder's investments. EPS - Earning per share: EPS highlights the amount of profit company is generating from one share. Operating Margin - Earnings Before Interest and Taxes: EBIT Margin highlights the amount of profit company earns by selling Rs. 100 worth of goods.