Focus is on revenue for new Colgate CEO

BENGALURU/MUMBAI : Leadership changes in fast moving consumer goods (FMCG) companies are often seen as exciting. CEO changes at Britannia Industries Ltd, Hindustan Unilever Ltd (HUL) and Dabur India Ltd suggest a new leader could generate significant shareholder value.

Last week, Colgate Palmolive (India) Ltd appointed Prabha Narasimhan as its new Managing Director and CEO effective September 1. Investors’ initial reaction was measured, with shares closing slightly after the announcement.

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No cheer

Analysts said a key area of ​​focus for Narasimhan, who served as executive director of home care at HUL, would be to drive revenue growth. In recent years, Colgate has experienced single-digit annual revenue growth. The fall in the company’s market share is worrying.

“We believe that with the appointment of Narasimhan by an external source, Colgate aims to regain market share in the Indian sector,” analysts at Nomura Financial Advisory and Securities (India) said in a March 10 report. “With limited market share gains due to high competitive intensity, we believe that a fresh perspective from outside the industry can bring cross-pollination of fresh ideas and strategies from other consumer categories,” they said.

Penetration levels are high in the oral care in which Colgate operates. Thus, there is little opportunity for growth unless the company sees significant results from entering new categories or channels its efforts to gain market share in the current category. Growth in the natural products segment has also been a challenge for Colgate.

That said, “a change in leadership can actually change the dynamics of Colgate. If the new CEO focuses on improving distribution, more advertising campaigns and new launches, it could eventually increase volumes and growth,” said Sachin Bobade, analyst at Dolat Capital Market Pvt. ltd.

The near-term outlook remains subdued with headwinds on commodity costs threatening the sector, although Colgate’s strong pricing power should keep it in good stead. Revenue growth in FY22 is expected to be single digit. Revenue grew 7% year-over-year in the nine months to December.

It helps that stock valuations are relatively undemanding. Shares are down 9% over the past year, underperforming the Nifty FMCG index. It trades at 36 times estimated earnings for FY23, according to data from Bloomberg.

However, with limited growth triggers, significant upsides can be capped.

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Sallie R. Loera