21 Mar 2013

Update |Sector: Automobiles

Colgate Palmolive

CMP: INR 1542

TP: INR 1400

Neutral

P&G finally entering Toothpaste?; channel checks suggest launch

round the corner

(CLGT IN, Mkt Cap USD3.9bn, CMP 1,542, TP 1,400, 9% Downside, Neutral)

-

P&G – in one of its recent presentations, mentioned about portfolio expansion

in developing markets and gave an example of Toothpaste category entry in

India.

-

This is in line with our earlier channel checks – Toothpaste entry in 2HCY13

through Oral B brand.

-

Our discussions suggest a possible July launch – initial activity in modern trade

has begun as per checks. Launch is expected to occur in phased manner starting

with bigger states like Maharashtra first. While the Toothpaste launch of P&G in

India is awaited since years and has been speculated in media frequently, the

launch has been postponed in the past twice for various reasons.

-

Notwithstanding P&G’s robust success in Toothbrushes (though it impacted

profitability) we do not expect any major impact of P&G’s Toothpaste category

entry on Colgate – given the difference in portfolio and distribution reach, we

believe it will be difficult for any niche player to challenge Colgate. HUVR’s

multiple efforts to enhance market share in the category haven’t yielded desired

results (market share have been flat at best).

-

Given the increased focus on profitability by P&G in its India operations,

possibility of disruptive price based competition looks remote.

-

Toothpaste is an ~INR50bn category growing in strong double digits –

underpinned by rising penetration levels as well underlying shift from

Toothpowder to Toothpaste (premiumisation).

-

We have a Neutral rating on Colgate as we believe current valuations at 34.9x

and 29.8x FY14 and FY15 EPS discounts the positives and leave little room for

disappointment.

Toothpaste entry round the corner? Channel checks suggest so

-

In one of its presentations at broker conferences globally, it mentioned about

impending Toothpaste launch in India

-

P&G is expected to launch Oral Care entry in next two month (possibly in July’13

– beginning of new financial year) as per our channel checks. This is in line with

the earlier checks.

-

Some of the modern trade customers have been sounded and preparations

have begun for the launch (visibility planning, merchandising strategy, display

equipments etc).

-

The launch is expected to happen in phased manner starting with bigger states

like Maharashtra in Phase I.

-

We note that earlier this launch was expected in CY10 and then in CY12 end.

-

P&G has in the past 18 months increased its investment aggressively behind

Oral‐B – trade marketing, celebrity endorsement campaigns (Madhuri

Dixit as

Smile Officer) etc.

1

Colgate

e Palmolive

Source: P&G

G Presentation (w

(website)

Can P&G re

eplicate its Toothbrushes

success in To

oothpastes?

-

We no that P&G Oral Care performan has been robust – i Oral B

ote

G’s

nce

n

its

Toothb

brush have compounded at 27% and 29% volume

and value C

CAGR over

FY07‐1 respective and cont

12,

ely

tribute ~23.5 of Gillette revenue. It gained

5%

e’s

~300bp

ps market share over Oct’

’10‐Oct’11. However we n

note that Too

othbrush is

a fragm

mented categ

gory with high

her price sens

sitivity.

-

This ca

ame through its aggressive investme

h

ents behind Oral B throu trade

ugh

promo

otions, advert

tising, leverag

ging celebrity endorsements etc. Cons

y

sequently,

it resul

lted in sharp margin drop for Oral Care

division of G

illette.

-

Given the increase focus on profitability by P&G in its India operations,

ed

y

n

possibi

ility of disruptive price bas

sed competition looks rem

mote to us.

-

Despite HUVR’s fo

e

ocussed effor to increase shares in Toothpaste category

rts

n

e

(HUVR

is a strong No.2 with ~26‐27% share, it has lo ~10% sha in last

~

ost

are

decade and aggre

e)

essive ad‐spe

ending, it ha not been able to rais shares,

as

se

unders

scoring the strong incumbe

ency advanta

age of Colgate

e.

-

We the

erefore see limited impact

t of P&G’s too

othpaste entr

ry on Colgate.

Impact: Se

ee little impac

ct on Colgate

e

-

We believe it can have a sentiment impact o

on Colgate sto

ock ‐ it derive

es ~75% of

ues from To

oothpaste (dominant lea

adership positioning in O

Oral Care

revenu

segment).

-

Notwit

thstanding P&

&G’s deep po

ockets and po

ossible aggressive investm

ments (Ad‐

spends

s, promotions

s, discounting

g, display sch

hemes etc), w

we don’t see a

a material

impact for Colgate (some quar

t

e

rter of heigh

htened ad‐sp

pends). Colga enjoys

ate

unpara

alleled brand equity (almo

ost generic fo

or the category) and has t

the widest

distribu

ution reach in Oral care (~4.5mn direct plus in

e

ndirect reach). With a

portfol

lio straddling

g price points

and benefits

s – we believ

ve it will be challenging

for any

y new entrant

t to pose a th

hreat to Colga

ate.

View: Neut

tral on rich v

valuations

-

Increas

sed focus of i

incumbents like HUL, Dab

bur and GSK –

– slew of new

w launches

recently across func

ctionality (sal

lt based, sens

sitivity, germ protection e

etc) augurs

well fr

rom a categ

gory development perspe

ective. Oral Care penetr

ration has

increas

sed ~1000 bp

ps in last decade and still has a substant

tial room to g

grow.

-

Toothp

paste is an ~INR50bn c

category gro

owing in str

rong double digits –

e

underp

pinned by r

rising penetration levels as well u

s

underlying shift from

Toothp

powder to Toothpaste (pre

emiumisation

n).

Colgate Palmolive

We have a Neutral rating on Colgate as we believe current valuations at 34.9x and

29.8x FY14 and FY15 EPS discounts the positives and leave little room for

disappointment.

Oral Care volume CAGR of 27% over FY07‐12…

….and a revenue CAGR of 29%

Oral Care’s contribution to Gillette topline

Value market share data of Toothbrush (dated)

Market share gain for Oral B came at the expense of margins

Volume market share data of Toothbrush (dated)

Colgate’s exposure to Oral care

20 May 2013

3

Colgate Palmolive

Toothpaste penetration up more than 2000bps in last

decade categories

Per capita Toothpaste consumption remains low as in most other

Personal care

20 May 2013

4

Colgate Palmolive

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Colgate Palmolive

No

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No

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20 May 2013

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