Last week, Colgate-Palmolive (NYSE:CL) announced capacity expansion plans in India by opening its fifth production facility in the country with an investment of $20 million. With Procter & Gamble (NYSE:PG) likely to have postponed its decision to enter into the Indian toothpaste market yet again, Colgate has more room to continue building its market share in the fast-expanding Indian oral care market. Colgate currently occupies half of the Indian oral care market and competes with Unilever (NYSE:UL) and local player Dabur.
Colgate’s Oral Care division occupies more than a quarter of the global oral market and generates 40% of Colgate-Palmolive’s stock value. Geographically, Oral Care is a significant part of the company’s business in Asia, comprising approximately 73% of sales in that region for 2011.
Indian Oral Care Market Still Largely Untapped
The Indian Oral Care market has a huge growth potential as the market penetration and per capita consumption of oral care products are still at much lower levels than the developed markets. For example, currently only 55% of the Indian population uses toothpaste and only 15% of those users brush twice daily. In contrast, 97% people use toothpastes and up to 87% of them brush twice daily in the developed markets. 
That means, the market for toothpastes can be doubled in size if the penetration levels increase to 75% and even 35% of them start brushing twice daily. Given the current trends of 7-8% annual volume growth rate, this is likely to happen by 2020. Apart from this, the market for value-added and premium oral care products like mouthwash, dental floss, teeth whiteners are still in the nascent stages and provide significant opportunities for growth in the urban markets.
Colgate has continued to grow its market share in Indian oral care market despite stiff competition from Unilever and other low-cost competitors. Its market share in terms of volume increased to 54% last quarter, two percentage points higher than the prior year period. The Colgate brand is almost synonymous with oral care products in India thanks to its deep distribution network and effective marketing strategies, along with focused market activity to increase toothpaste use. Colgate also occupies a 26% share (by volume) of the nascent but fast-growing mouthwash category.
P&G’s Plans To Enter Indian Toothpaste Market Postponed?
Procter & Gamble currently only sells toothbrushes in India under the Oral B brand. Toothbrushes barely constitute 10% of the Indian oral care market, compared to toothpastes that account for three-fourths of the market. It has been weighing the prospects of launching its Crest and Oral B toothpaste brands in India for a long time now. There was revived speculation about a strong possibility of P&G finally making a full-fledged foray in the India oral care market till last quarter. The highly visible campaigns such as the ‘Smile India Movement 2’ gave further credence to the news, but it now appears to have pushed back its plans yet again.
The consumer giant recently suffered market share losses in its core developed markets and has reshuffled its priorities to recover market share and operating margin in its top 40 country-product categories, which account for more than half of its sales. It is thus likely to take a very measured approach toward any further addition to its county-product categories. This would be especially true for the Indian oral care market, where it would take significant resources to bite off market share from formidable competitors like Colgate, Unilever and Dabur that together occupy a huge 85% of the total market today. The move is likely to give Colgate and Unilever more room to consolidate their market leadership in the Indian oral care market.
We value Colgate-Palmolive with a $98 Trefis price estimate of its stock, almost in line with the current market price.Notes: