Colgate Eyes Acquisitions To Drive Growth, Says CEO Prabha Narasimhan

Colgate-Palmolive (India) Ltd. is exploring meaningful opportunities for acquisitions in the personal care segment as it seeks to elevate its growth trajectory versus the past five years.

"The biggest thing we are striving to do is to drive growth," Chief Executive Officer Prabha Narasimhan said at a press conference in Mumbai on Tuesday. The company is watching the direct-to-consumer space very "closely" and its intent to acquire relevant brands remains "very high".

The direct-to-consumer market is one such area where traditional consumer goods brands have been trying their luck with either acquisitions of startups or investments. Hindustan Unilever Ltd., Marico Ltd., ITC Ltd. and Tata Consumer Products Ltd. have bought D2C food and non-food businesses. Dabur India Ltd said recently that it was also exploring D2C acquisitions in the personal-care space.

Although Colgate's oral-care category has near universal penetration, the CEO said the company's personal-care segment was expected to drive the next phase of growth.

Other than inorganic growth, it also aims to build a strong personal-care portfolio leveraging the high recall of the Palmolive brand, Narasimhan said. "Palmolive is an underserved equity in our portfolio."

Efforts are being made to spur penetration levels of the body-wash and hand-wash categories, considering the brand already has about 67% awareness, which is not easy to build in a fragmented market. "The penetration of body wash is only 2%, and even if you take urban, it will be in the single digits," the managing director said.

However, it has the potential to double to become a Rs 1,000-crore category in two years. "We see significant opportunity to grow Palmolive at least twice as fast as the company grows," the CEO said.

The toothpaste maker is considering bringing products from the parents' stable. Globally, Colgate is present in categories beyond cleansing, such as home care, pet care and hair care. "And all of them are certainly within our consideration," Narasimhan said.

Prabha Narasimhan, MD & CEO, Colgate Palmolive India (Source: Company)

Core Strategy Intact

Colgate is the most-penetrated fast-moving-consumer-goods brand in the country, reaching nine out of 10 households and over 1.7 million stores.

However, the core focus areas of the company to spur oral-care growth remains intact. Under Narasimhan's leadership, Colgate is driving higher aggression on the ground, driving usage-led volume growth in the rural markets.

It is also betting on premiumisation to propel sales growth and ramping up innovation and marketing spends to grow ahead of the market in the current financial year. "Volumes have dipped all through 2022 and have been negative by and large," the CEO said. "But as inflation tapers, we are seeing recovery in volumes, with green shoots seen in certain rural pockets."

The other two listed players—Dabur and HUL—are also seeing recovery in the oral-care segment.

Colgate looks to drive growth in toothpaste volumes through consumer education and increased frequency of brushing in urban and rural markets. "In India, about 55% of rural households don't brush daily while only 20% of urban households brush twice a day. So, from a volume perspective, this becomes our biggest opportunity for growth" she said.

But habit formation is a slow process and it won't happen overnight.

The eponymous toothpaste maker is expected to benefit from this strategy only in the long term, according to analysts. "Our indexed volume calculation shows that Q1 FY24 volumes (up 4.3%) are at the same level as that of Q1 FY20, indicating tepid growth for the company," said Amnish Aggarwal, head of Research at Prabhudas Lilladher in a research note.

The company said it will focus more on premiumisation through science-based innovations to 25% from 14% now. Its premium brand, Colgate Total, is available in advance health and charcoal deep-clean variants. The company said it will also launch a sensitive variant in the coming weeks.

Colgate Total has been growing in double digits since the last two years, she said. The company is investing heavily behind the brand to drive premiumisation. Narasimhan expects Colgate Total and PerioGard to be the fundamental blocks of the company's premiumisation journey.

Even for the personal-care business, the company wants to remain a premium player as it says that it is too early to launch smaller-sized access packs to drive volume growth as overall penetration of premium products is quite less. The company will eventually launch Rs 10–20 price packs of most of its premium range in future to drive consumption.

Colgate's gross margin is expected to be at the current levels, while Ebitda margin may display volatility on higher marketing spends, Colgate Chief Financial Officer Jacob MS said.

In the first quarter of fiscal 2024, the company's gross margin expanded by 211 basis points to 68.4%, while Ebitda margin came in at 31.6%, up 438 basis points over the previous year.