Colgate: Weak volumes despite price cuts signal further market share decline

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26 Aug, 2025 12:21

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Anubhav SahuMoneycontrol Research

Fast moving consumer goods (FMCG) segment has been witnessing a steady disruption on account of competition from both listed and unlisted companies. Colgate Palmolive (India), caught in this crossfire, has recently attempted to claw back its market share. Its subdued volume growth doesn’t look too encouraging either. Given this context, Colgate’s quarterly results can be seen as one of the most awaited earnings updates.

Quarterly result: Muted topline growth

In Q2 FY18, Colgate posted a muted sales growth of 3 percent YoY aided by pricing effects and offset by weak volumes (-0.9 percent YoY). Gross margins (+40 bps YoY) benefitted from a subdued increase in raw material prices. EBITDA margins expanded by 170 bps wherein higher employee costs (+13 percent YoY) were more than compensated for by lower advertisement spend (11.0 percent of sales vs. 12.1 percent of sales in Q2 2017) and a curtailment in other expenses.

Lower promotional spending is surprising

In recent times, Colgate has been positioning for the ayurvedic segment of toothpaste to resurrect its market leadership. It had recently launched a premium variant of Cibaca Vedshakti, Colgate Swarna Vedshakti, in the southern parts of India. Given its intent to create an improved natural portfolio, lower advertising spend from the company (-7 percent YoY) was below our expectations.

Lower volumes point towards further contraction in market share

Interestingly, Colgate has been a beneficiary of GST rates (18 percent vs 25 percent earlier), on account of which the company had reduced prices (~9 percent) recently for both toothpaste and tooth brush categories. However, inspite of such steps, the lower volume indicates further deterioration in the company’s market share. It has reportedly been impacted by disruption in wholesale channel.

As per industry sources, in the first half of 2017, market share for Colgate stood at 52.4 percent (vs. 55.1 percent in FY17). While Dabur has gained from 10.8 percent (CY 2014) to 12.2 percent. As we earlier briefed, the big disruptor has been Patanjali which had gained market share from 0.6 percent (CY 2014) to about 6 percent now. This figure doesn’t factor in sales from Patanjali’s own stores.

While stock has recently corrected from the all-time high by about 10 percent, 12m forward PE multiple is still elevated in our view. The falling market share for this single product category company keeps us concerned and we prefer to wait on the sidelines before we see any definitive signs of improvement.

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For more research articles, visit our Moneycontrol Research Page.