Rationale Behind Exceptional Returns!

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.

Britannia

1. 5-year Average ROE* – 41.39%.
2. Debt Free
3. Average 5 years Revenue Growth – 10.61%.
4. Average 5 years EPS* – Rs. 58.90
5. 5-year Average PAT* Growth – 34.35%
6. 5-year Average Operating Margin* – 12.61%

Nestle

1. 5-year Average ROE* – 35.08%.
2. Average 5 years Revenue Growth – 4.32%.
3. Average 5 years EPS* – Rs. 104.06
4. 5-year Average PAT* Margin – 10.69%
5. 5-year Average Operating Margin* – 17.70

Colgate-Palmolive

1. 5-year Average ROE* – 61.72%.
2. Debt Free
3. Average 5 years Revenue Growth – 6%.
4. Average 5 years EPS* – Rs. 29.60
5. 5-year Average PAT* Margin – 14.71%
6. 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.