Can Colgate outshine peers? Volume growth key after ad spend jump
CLGT has been effectively leveraging AI-driven tools to deliver personalized consumer interactions on e-commerce platforms, resulting in 1.5x growth in engagement and content performance.
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In 1HFY25, Colgate has achieved volume expansion while maintaining its margin trajectory. However, historically, CLGT's volume growth has lagged behind that of its peers. Hence, tracking its volume performance in the upcoming quarters is important, especially given the current softness in urban demand.
In FY24 and 1HFY25, CLGT achieved revenue growth of 9% and 11%, outperforming FMCG peers. Volume growth remained flat in FY24 but improved to 7% in 1HFY25. This performance reflects a strategic focus on premiumization and portfolio optimization, with growth driven more by product mix enhancements than significant price hikes. Management focuses on delivering balanced growth across volumes, pricing, and product mix, as per a Motilal Oswal report.
EBITDA margin remained steady YoY at 32.3% in 1HFY25, as the company continued to invest in brand-building initiatives, with advertising spends increasing by 15% YoY during the period to bolster consumer awareness.
Boosting volume growth
The company remains focused on driving balanced growth through various strategies for volume, pricing, and product mix. Despite near-universal penetration in India, significant headroom exists for consumption growth.
Only 20% of urban households brush twice daily, while 55% of rural households do not brush every day. Furthermore, urban and rural households replace toothbrushes every six and 15 months, respectively, compared to the recommended three-month cycle. To address these gaps, the company is actively working to influence consumer behavior through oral health awareness programs and above-the-line (ATL) communication campaigns. However, changing consumer behavior is difficult and time consuming, and, thus, acceleration in volume growth of the oral care category will only be gradual.
Headroom for premiumization
The premium toothpaste segment continues to witness robust double-digit growth, reflecting the effectiveness of the company’s premiumization strategy. Despite this success, the oral care category offers significant headroom for further premiumization, as penetration remains relatively low. For instance, only 22% of toothbrushes sold in India are priced above Rs 40, indicating substantial untapped potential.
Management is confident that initiatives focused on product assortment, consumer awareness, and channel strategies can drive premiumization. This is evidenced by the outperformance of Colgate Total, which is growing at 3x the category rate, and Visible White, which is delivering strong double-digit growth, as per the Motilal Oswal report.
To encourage consumer trials while maintaining affordability, the company has adopted a calibrated premium pricing strategy, currently pricing at 0.77x of Dec’23 levels. Additionally, the company has significantly expanded the availability of premium products by ramping up distribution coverage from 30,000 stores to 300,000 stores, ensuring deeper market penetration and accessibility.
Digital initiatives
CLGT has been effectively leveraging AI-driven tools to deliver personalized consumer interactions on e-commerce platforms, resulting in 1.5x growth in engagement and content performance. Additionally, the company leverages AI and machine learning (ML) models to optimize product assortment across 1.7m stores, ensuring better availability of premium offerings while enhancing overall operational efficiency.
The company has also refined its supply chain operations, focusing on inventory management to lower stock levels while driving higher distributor sales. Meanwhile, the quick commerce channel has become a significant growth engine, outperforming the broader business with 8x growth. This channel has proven to be growth-accretive and also helped to expand margin and gain market share.
