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Colgate investors need sustained market share gains to be cheerful

Colgate Palmolive (India) said its board has approved a third interim dividend of `9 per equity share for the financial year ending 31 March 2013. Photo: Mint (Mint)
Colgate Palmolive (India) said its board has approved a third interim dividend of `9 per equity share for the financial year ending 31 March 2013. Photo: Mint
(Mint)

  • At its recent analyst meet, the firm showed an enhanced focus on innovation, new product launches
  • The success of the initiatives undertaken will eventually play a role in growing market share, say analysts

When Colgate Palmolive (India) Ltd’s management met with analysts last week, there was an enhanced focus on innovation and new product launches. The company, present in the oral-care category, is witnessing a strong momentum in its naturals portfolio with market share gains and higher penetration this year. Here, Colgate has refreshed its Vedshakti brand with new packaging. It is also looking to broaden this portfolio through the launches of Vedshakti mouth protect spray and Vedshakti oil pulling. The company would also launch a special toothpaste for diabetics, and there are innovative offerings under the toothbrush category as well.

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Analysts are fairly enthused after the meeting. “Even as most of these NPDs are in niche segments (unlikely to move the needle on growth), the clear intent is to focus on a larger play in the oral-care category, play the role of a category leader by expanding the pie through premiumization and gain dominance in the problem-solution segment (having missed the sensitivity opportunity)," wrote analysts from Kotak Institutional Equities in a report on 21 December. NPD refers to new product development. Problem-solution segment typically means where a toothpaste is suggested for a specific issue such as sensitivity toothpaste.

Reason to smile
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Reason to smile

Colgate said its core toothpaste category is doing well and e-commerce business has seen strong traction. Overall, the success of the initiatives undertaken will eventually play a role in improving its market share, said an analyst requesting anonymity. As such, investors are waiting to see sustained market share gains, although it may not be an easy road. Edelweiss Securities Ltd expects Colgate’s innovation funnel and brand investments to keep flowing, which should help arrest its market share loss; market share gains, albeit, may take time.

Volume growth outlook isn’t rosy with penetration levels being high. As JM Financial Institutional Securities Ltd’s analysts said in a report: “Management acknowledged that the strong volume growth rates (9-14%) seen during FY08-FY14 was driven by sharp increase in penetration rates and with rates now already at a much higher level, such high growth rates aren’t likely to be replicated. Incremental growth would come from driving higher usage, but changing habits is a long-drawn exercise".

Meanwhile, the Colgate stock has been resilient with demand for oral-care products largely steady during covid. The shares are 2% higher than their pre-covid highs seen in January on NSE. The stock trades at around 42 times estimated earnings for FY22, based on Bloomberg data. Understandably, larger peer, Hindustan Unilever Ltd trades at a much higher valuation multiple of 56 times FY22 estimated earnings. The Colgate stock’s valuation isn’t as expensive, say analysts and the company is taking steps in the right direction. Investors will cheer with higher valuations once they see sustained market share performance.

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