Colgate-Palmolive Rating- Neutral - Scaling up personal care business

Colgate-Palmolive Rating: Neutral | Scaling up personal care business

By Nomura Research

Tothpaste major Colgate Palmolive’s new MD & CEO Prabha Narasimhan presented her roadmap in her first interaction with analysts showcasing a new thrust in the company’s strategy. The key focus areas were : (i) driving category volume growth through improvement in penetration/per capital spending on oral care; (ii) innovative science-backed value-added launches driving premiumisation; (iii) scaling up personal care business; and (iv) ramping up digitalisation investments.

Also Read: Colgate needs aggression under new CEO to grow

The toothpaste category has been witnessing lower volume growth over the past couple of years and slower adoption of premium products even though 55% of rural households do not brush daily and two-thirds of the market is just above the entry-level price point. While CLGT been driving share gains in e-com, gains in general trade and the objective of moving to an overall higher growth trajectory have be constrained by moderate category growth—a function of not enough category development despite high penetration. Recent premium innovations are tracking well, albeit they are still small contributors to overall revenue. The guardrails laid down by the new CEO are promising and have the potential to improve volume growth and market share for the company; however, we believe execution will be key. We reiterate our Neutral rating and TP of Rs 1,600, with a 6% EPS CAGR over FY22-25F.

CLGT’s four pillar growth strategy

Lead toothpaste category growth:The volume growth has been tepid for the industry, with underspending on oral care wheras in Brazil/ Philippines per capita consumption is 3.1x/1.8x higher than India. The lack of consumer awareness on benefits of oral care has been a barrier for the industry to grow. The other reason is inculcating twice-a-day brushing habit and increasing per capita toothpaste consumption which are long-term levers to drive category growth. Continued focus on protective care along with entry into newer growth categories (oral beauty) will aid Colagate grow ahead of the market.

Also Read: Colgate-Palmolive India rating: Hold | Topline remains the primary concern

The company’s focus on value-added science-backed launches and forays into niche segments such as oral beauty care, diabetic toothpaste, kids toothpaste, etc have been fundamental to the company. It continues to contemporise its core portfolio with stronger value-added formulations at attractive price points. Around two-thirds of domestic market consumes toothpastes priced under Rs 100 per unit, and CLGT has launched trial packs at affordable price points to encourage consumers to try out newer launches, thereby driving premiumisation.

Leads category growth in toothbrush and devices:The focus remains on driving volume growth in toothbrushes (ideal replacement demand is three months, but replacement demand is 6/15 months) through value-added products such as Colgate Super Flexi and Colgate Ultra Flexi. The company has been driving premiumisation through innovative launches such as the Gentle range , electric toothbrushes and niche products.

Build personal care:CLGT is scaling-up of brand Palmolive into adjacent categories. The focus is on hand wash, body wash and face care. It will launch new products in a calibrated manner in due course.