No ayurvedic relief for Colgate yet

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Colgate Palmolive’s results for the September quarter (Q2) seem to be a mixed bag, and there are reasons for the Street to worry.

Revenues grew 2.7 per cent year-on-year (y-o-y) to Rs 1,078 crore, aided by a better price and product mix, while volumes fell 0.9 per cent. But, analysts had estimated revenue growth of four per cent, aided by volume growth of one-two per cent and price/mix impact of two-three per cent, for the quarter. The company indicated that wholesale demand was soft at the start of Q2 (due to the goods and services tax transition), but it expects demand to pick up gradually.

Its performance at the net profit level, though, was in line with estimates, as the bottom line (adjusted for tax reversals) was up five per cent over the year-ago quarter, at Rs 177 crore. Operating profit at Rs 300 crore was over nine per cent higher than the year-ago quarter, while margins at 27.7 per cent was 170 basis points (bps) higher. The performance was led by lower advertising and promotions costs, which as a percentage of revenues fell 110 bps. Raw material costs and other expenses, too, were down 40-80 bps, which helped offset some of the pressures on account of higher employee costs.

The bigger worry is that Colgate’s market share in key product categories continues to fall. The company said its market share for the January to August period for toothpaste and toothbrush categories stood at 54 per cent and 45.5 per cent, respectively. Compared to FY17, this is lower by 110 bps and 240 bps, respectively. Aggressive competition in the ayurvedic toothpaste category has led to the decline in share. Volume market share has been on a continuous decline since the start of FY16. Given the falling trend of volumes and market share loss, the stock shed 2.6 per cent in trade to close at Rs 1,063.55 on Monday.

To arrest the fall in market share and to counter the competition, Patanjali’s Dant Kanti, the company launched a premium variant of its existing brand Cibaca Vedshakti called Swarna Vedshakti in Q2 in Maharashtra and south India. While Colgate has been selling toothpaste with ingredients such as neem and clove, the two brands are positioned in the ayurvedic toothpaste category and form part of its naturals portfolio. The company would be hoping to regain some of its market share, given the fast-growing ayurvedic segment now constitutes over 30 per cent of the toothpaste category compared with a less than half of that three years ago.

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