Colgate Palmolive (India) Ltd needs a major strategy refresh for higher volume growth, and part of this refresh could come from diversifying its portfolio into the high growth personal care segment, outside of oral health care.
The company performed poorly on all parameters in the third quarter of 2022-23 — flat revenue growth, decline in volumes, fall in operating profit, contraction in operating margin and fall in the profit before tax. The only positive was that advertising and promotion spending improved, though that was one of the reasons for the margin shrinking. The higher ad spends were in sync with the company’s stated intent to prioritise growth over margins.
Predictably, the management has continued with their ‘cautious optimism’ outlook. The company said it would continue on its path of toothpaste and toothbrush categories’ growth with premiumisation and also build its small personal care business. The challenges in rural demand were highlighted by the company leading to muted volumes, though it expects an improvement in the next fiscal. About 40 per cent of the company’s revenues are from the rural market.
Analysts are not too optimistic about its performance in the near term, reasoning that delayed execution on some of the important markers was most likely due to the prevailing weak macro environment.
Prabhudas Lilladher said the company’s focus on “low growth oral care segment across price points” will limit its growth. The high growth personal care segment had higher penetration opportunities. “Revival in rural demand and new launches in personal care hold key to valuations,” it said. While demand for handwash remained volatile with declining Covid-19 cases, the body wash segment saw growth.
ICICI Securities said while the company has enhanced focus on some sub-categories and there have been new launches, “the uptick in revenue is still not visible”.
India has a poor record of oral healthcare. In 2020, a non-profit organisation called “The Borgen Project” pointed out that about 85 to 90 per cent of Indian adults and 60 to 80 per cent of children have dental cavities. Only half of Indians use a toothbrush while slightly over a fourth brush twice a day. There is poor awareness of the need for oral healthcare and the impact it has on overall health.
Colgate said it is partnering with the Government of Andhra Pradesh to start oral health awareness programmes while it has also launched an e-commerce platform for dentists to enable them to access specialty products.
Motilal Oswal said the company has been losing market share to herbal players for some years now. Premiumisation in general trade and traction in personal care were slow in picking up. “... we do not see any material change in business prospects over the near to medium term,” the brokerage said.