Colgate-Palmolive regaining ground

The firm is focussing on distribution and its ‘naturals’ portfolio

Having been on the receiving end of the market share battle in the oral care segment over the last two years and subsequent underperformance on the bourses, brokerages are now turning positive on Colgate as it is implementing certain strategies to regain the lost ground.

It is looking to expand its distribution network, strengthen its ‘naturals’ portfolio and introduce new products to improve its overall revenues.

On the distribution front, Colgate is planning to increase its direct reach by 15 per cent in the countryside in the next one year. The wholesale channel, which accounts for half of the firm’s distribution mix, is stabilising after facing significant disruption following the implementation of the goods and services tax. This had impacted sales of its stronger brands.

Normalising of trade, coupled with distribution and marketing initiatives, is expected to stabilise the firm’s market position. The company has lost 420 basis points (bps) from a peak volume market pie of 57.9 per cent for the toothpaste segment in the first quarter of FY16.

Analysts at ICICI Securities said market share losses had narrowed because of good response to two of its toothpaste variants in the ‘naturals category’ — Swarna Vedshakti and Cibaca Vedshakti. These products have increased Colgate’s overall toothpaste market share by one percentage point (100 bps) in volume terms, they said.

The firm’s plan to enter into new product categories — personal care, pet care, home care — should also drive its overall revenues. But margins are likely to be dilutive in the initial period. The oral segment contributes 95 per cent to the company’s India revenues, while it is 48 per cent for its parent.

Margins in the oral care business, however, are expected to improve in a couple of quarters on the back of volume growth and price hikes.

For the stock, valuations, which are lower than its threeyear average, should improve.

Analysts at HDFC Securities said most of the negatives were priced into the stock. With its toothpaste market share now at 2012 levels, they said the market share had now bottomed-out and a rerating was on the cards. The stock is trading at 35.5 times its FY19 earnings estimates.