MOSL: COLGATE (Buy)-Stability gradually returning, play on rural growth-But pace of initial recovery appears to be slower

​COLGATE: Stability gradually returning, play on rural growth; But pace of initial recovery appears to be slower than peers

(CLGT IN, Mkt Cap USD4.4b, CMP INR1046, TP INR1355, 30% Upside, Buy)

• We recently met management of Colgate Palmolive (India). The insights provided by the company have fortified our optimism about its longer-term prospects. CLGT appears attractively positioned to grow over the next few years due to the following reasons:
  
• Both the exit market share and sequential market share trends indicate a gradual stabilization in the market share. With the launch of Colgate Swarna Ved Shakti (the second brand under the Colgate Ved Shakti umbrella), along with a bevy of products likely to be rolled out over the next few years under this brand, CLGT can emerge as a strong play in the herbal/natural/ayurvedic sub-segment, which is 25% of India's overall toothpaste market.
  
• CLGT dominates the remaining 75% of the toothpaste market, particularly in the family segment. Also, it is gaining share year after year in the freshness segment, and is close to the market leader in the multi-benefit category.
  
• Notably, the company has been upping the ante on innovation, advertising and premiumization.
  
• With its rural dominance, CLGT is an attractive play on a rural recovery. Government schemes are falling in place and monsoon has been near normal, which is likely to lead to a sharp revival in earnings growth off a low base FY19 onward.