Revenue key focus for Colgate’s new CEO
PremiumThe near-term outlook remains subdued for the FMCG sector, but Colgate’s strong pricing power should support it
BENGALURU/MUMBAI : Leadership changes in fast-moving consumer goods (FMCG) companies are often viewed as exciting. Changes of chief executive officers (CEOs) at Britannia Industries Ltd, Hindustan Unilever Ltd (HUL), and Dabur India Ltd suggest that a new leader could drive significant shareholder value.
Last week, Colgate Palmolive (India) Ltd named Prabha Narasimhan as its new managing director and CEO effective 1 September. The initial response of investors has been measured with the shares closing marginally up following the announcement.
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A key focus area for Narasimhan, who served as executive director, home care, at HUL, would be to boost revenue growth, analysts reckoned. For the past few years, Colgate has been clocking single-digit revenue growth annually. The fall in the company’s market share is a concern.
“We believe with the appointment of Narasimhan from an external source, Colgate aims to regain market share in the India business," said analysts from Nomura Financial Advisory and Securities (India) in a report on 10 March. “With market-share gains limited because of elevated competitive intensity, we believe a fresh perspective from outside the industry can bring in cross-pollination of fresh ideas and strategies from other consumer categories," they said.
The penetration levels are high in oral care in which Colgate operates. Thus, there is little scope for growth unless the company sees material results from its entry into new categories or channels its efforts in gaining market share in the current category. Growth in the naturals segment has also been a challenge for Colgate.
That said, “a change in leadership can actually change the dynamics for Colgate. If the new CEO focuses on enhancing distribution, more advertising campaigns, and new launches it may boost volumes and growth, eventually," pointed out Sachin Bobade, analyst, Dolat Capital Market Pvt. Ltd.
The near-term outlook remains subdued with commodity cost headwinds looming for the sector, though Colgate’s strong pricing power should hold it in good stead. Revenue growth in FY22 is expected to be in single digits. Revenues have increased by 7% year-on-year in the nine months ended December.
It helps that the stock’s valuations are relatively undemanding. The shares have declined by 9% in the past year, underperforming the Nifty FMCG index. It trades at 36 times FY23 estimated earnings, Bloomberg data showed.
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However, with limited triggers for growth, meaningful upsides may be capped.
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