Colgate-Palmolive India Limited - Oral B launch to drive ad-spends - Antique

P&G's Oral B launch broadly at a premium to peers

According to channel checks, P&G has forayed in to the toothpaste category through Oral B. The company has launched sub brands like All rounder 32, All rounder gel and pro health in the overall oral care, gel based toothpaste and sensitive/super premium segments respectively. According to our understanding (refer our pricing comparison table) , Oral B has launched its product at a 29% and 18% premium over CPIL (Colgate Palmolive India Ltd) in the gel based and overall oral care segment and at a 16% discount in the sensitive segment. As compared to HUL, Oral B is at a 14% premium in the gel-based segment while in the overall oral care and sensitive segment it is at a discount of 30% and 15% respectively. Further when compared to Dabur, Oral B is at a 9% premium to Dabur red toothpaste (currently Dabur's most successful and fastest growing brand).

Launch to hit HUL the most (in overall oral care) and CPIL the least

From our understanding of the pricing differences between Oral B and its competitors, we believe that the brand could impact HUL the most in the overall oral care category, through gain in share from its weaker brand, Pepsodent. In the gel based segment, Oral B could pose some challenge to Close up in the medium to longer term. However, for CPIL, we believe that the competition based on the pricing would be the least. In case of Dabur, Oral B would be a concern for Dabur Red toothpaste in the urban markets. However, in the rural markets, Dabur is expected to continue with its franchisee of red toothpowder consumers upgrading to red toothpastes. Both CPIL and Dabur will not face any competition from Oral B in the rural markets due to Oral B's premium pricing. Conclusively, the primary loser could be Hindustan Unilever.

We believe that CPIL is the most strongly placed company in the toothpaste category backed by a comprehensive product portfolio across all price categories and segments. The consistent gain in market share by the company particularly in the last three years signifies its brand strength and its lowest vulnerability to competition in the oral care space.

Nevertheless, increase in ad-spends is a concern for CPIL

The key concern in case of CPIL would be increase in ad-spends during the next two years. Ad-spends and sales promotions taken together, is expected to touch 18.9% and 20.2% of net sales during FY14e and FY15e (a growth of 39% YoY and 23% YoY respectively).

Cut estimates by 3% for FY14 and FY15, Re-iterate SELL

In view of the expected increase in ad-spends and sales promotions we are reducing our FY14 and FY15 estimates by 3% and 4% respectively to INR38.0 and INR43.3. We reduce our target price to INR1211 and re-iterate our SELL recommendation on the stock at the current levels.

Source : Equity Bulls

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