Colgate India: Focus on growing and premiumising the category

23 Aug 2023 , 12:09 PM

Recommendation: Add; Target Price: Rs 2050

 

Analysts of IIFL Capital Services met the senior management of Colgate at its analyst meet. The company is committed to grow the category via increased frequency and premiumisation. The Oral Beauty space has opened up a new use case for consumption. In the past few quarters, the Naturals segment has plateaued out, which bodes well for Colgate. The company is using AI and analytics through ‘AmaZing’, Smile Stores and e-b2b portal ‘Dentist First’ to drive growth. With Ebitda margin exceeding 30%, analysts of IIFL Capital Services believe that the focus to be more on the top-line growth to drive profits. Maintain ADD; TP Rs2,050. 

Volume growth remains priority: 

Colgate is focusing on driving consumption by educating households on the importance of Oral Care — a highly penetrated category — but with scope to grow with increased frequency and premiumisation. In rural, 55% of the population do not brush daily; while urban India only has 20% brushing twice a day. However, changing consumer behaviour would be a slow process. After a softer CY22, the company is seeing demand recovery in urban as well as in certain markets in rural. Ad spends are being increased (13.8% of revenue in Q1FY24) to drive growth. 

High scope for premiumisation: 

With 86% of the category sitting below 110 ASP index, the contribution from premium part of the portfolio remained low. The company expects to improve it significantly through premium products such as ‘Visible White’, ‘Colgate Total’ and ‘PerioGard’. In Toothbrush, the company has launched ‘Super Flexi’ and ‘Gentle’, which provide superior cleaning. It also aims to expand premium personal care under Palmolive with the launch of body wash, which has a low category penetration of 3% in India. 

Strong digital capabilities: 

Colgate is at the forefront of digital transformation. It uses Artificial Intelligence (AI) to provide assortment recommendations to its salespersons in Smile Stores. Additionally, through its image-recognition tool ‘AmaZing’, the company calculates metrics — share of shelf, out-of-stock occurrences, asset health, etc. As compared to 2021, Colgate has increased the total Smile Store distribution points by 30%. These digital tools help the sales team in placing the right product at the right shelf in the right store.