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Colgate Palmolive India

Colgate-Palmolive (India) - Consumer Products.
Competitive position can potentially deteriorate. Colgate’s cost competitiveness is
likely under threat starting FY2011E as the company will see a reversal of trends in the past four years (FY2005-09) in lower excise rates—down 650 bps to 3.6% and lower income tax rates. 50% of Colgate’s output is in excise-exempt zones, this is 80% for HUL, providing HUL an option to channelize the benefits to gain market share.

Headwinds facing Colgate are (1) renewed aggression from HUL, (2) limited pricing power and (4) higher tax rates.

Favorable factors are (1) strong momentum in market share gains, (2) penetration-led growth in Cibaca and (3) opportunity to moderately cut adspends in the near term.

Investors can reduce the stock on rallies due to : (1) premium valuations for sub-par earnings growth in FY2011E, (2) HUL is now a threat as it has become more aggressive compared to its previous position of being satisfied with improving sales , (3) limited pricing power, (4) mix deterioration is a reality and (5) higher tax rates starting FY2011E are a reality too.

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