COLGATE PALMOLIVE Fore warned is fore armed : Edelweiss,

We recently met Ms. Prabha Parameswaran, Managing Director, Colgate‐
Palmolive India (Colgate). She reiterated that there is no slowdown in
growth, except for some impact in the mouthwash segment.
Management expects sales growth momentum (16% CAGR over FY08‐13)
to remain robust riding rise in both penetration (rural stands at only 63%
against 91% in urban) and per capita consumption (India half of China;
pushing “brushing twice”). We believe the company is well equipped to
counter competition from P&G’s impending entry in the toothpaste
market. However, we expect ad spends in the toothpaste category to
accelerate (will aid broadcasters like ZEE, Sun TV). Maintain ‘HOLD’.

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Premiumisation, penetration, consumption: Growth mantra
Colgate will focus on increasing rural penetration and per capita consumption.
Premiumisation will aid gross margin (globally, Colgate’s margins are 5‐7% higher than
in India). Premium segment now contributes 10% to sales versus negligible earlier.
Our view: Well equipped to tackle fresh competition
In our view, P&G’s impending entry seems ill‐timed. Since the entry has been
anticipated for years, existing players are well prepared—Colgate, HUL and Dabur have
stepped up aggression in distribution, innovation and promotion; GSK is well
entrenched in the premium segment. It will thus be a difficult and expensive affair for
P&G. The toothpaste market, in our view, is the toughest nut in the Indian consumer
space to crack as it is strongly dominated by Colgate, armed with an increasing and
highest‐ever market share. Also, as P&G sharpens focus on the toothpaste category, its
focus on shampoos, skin cream and detergents is likely to wane, benefiting HUL, Dabur
etc. Thus, we expect P&G’s entry to be gradual and selective.
Outlook and valuations: Robust; maintain ‘HOLD’
We continue to like Colgate’s strong distribution, generic brand, customer activations
and innovation. Currently, the stock is trading at 31.8x and 27.4x FY14E and FY15E EPS,
respectively. We maintain ‘HOLD’ and rate the stock ‘Sector Performer’.