Bangalore/Mumbai Leadership changes in fast moving consumer goods (FMCG) companies are often viewed as exciting. The change of chief executive officers (CEOs) at Britannia Industries Ltd., Hindustan Unilever Ltd. (HUL) and Dabur India Ltd. shows that a new leader can drive significant shareholder value.
Last week, Colgate Palmolive (India) Limited named Prabha Narasimhan as its new Managing Director and CEO, with effect from September 1. The initial reaction of investors has been assessed with the shares rising marginally after the announcement.
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Analysts believe a key focus area for Narasimhan, who has served as executive director of home care at HUL, will be boosting revenue growth. For the past few years, Colgate has been posting single digit revenue growth annually. The decline in the company’s market share is a matter of concern.
“We believe that with the appointment of Narasimhan from an external source, Colgate aims to gain market share in the India business,” analysts at Nomura Financial Advisory and Securities (India) said in a report on March 10. Due to the high competitive intensity, we believe that a new approach from outside the industry can lead to the cross-pollination of new ideas and strategies from other consumer categories,” he added.
The level of penetration in oral care is high in which Colgate operates. Thus, there is little room for growth unless the company sees material results from entry into new categories or channels its efforts to gain market share in the current category. Growth in the natural segment has also been a challenge for Colgate.
That said, “the change in leadership could really change the dynamics of Colgate. If the new CEO focuses on increasing distribution, more ad campaigns and new launches, it could ultimately drive volume and growth,” says Sachin Bobde, Analyst, Dolat Capital Markets Pvt Ltd.
The near-term outlook for the sector remains weak with commodity cost headwinds coming in, though Colgate’s strong pricing power should position it well. Revenue growth in FY22 is expected to be in the single digits. Revenue grew 7% year-on-year in the nine months ended December.
It helps that the stock’s valuation is relatively low. The shares have lost 9% last year against the Nifty FMCG index. Bloomberg data shows it trades at 36 times FY23 estimated earnings.
However, with limited triggers for growth, meaningful upside can be limited.
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