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Expect over 8% volume growth in this fiscal year: Marico

Growth in various franchises — Safolla, Parachute and value-added hair oils — aided profit and margin growth, said Saugata Gupta, MD & CEO, Marico .

The company reported steady fourth quarter numbers with a 25.5 percent jump in net profit to Rs 138 crore and 6.6 percent rise in revenue to Rs 1,307 crore from the year-ago period.

The company’s operating efficiency (EBITDA) rose 27 percent to Rs 217 crore in the quarter gone-by.

Speaking to CNBC-TV18, Gupta says that ‘the thrust on rural distribution and right pricing will boost volume growth to 5-7 percent for Parachute in the near- to medium-term.

Gupta expects over 8 percent volume growth for FY17.

The company’s margins, aided by low oil prices, will see some expansion in the first quarter of FY17, but will stabilise after that.

For FY17, if monsoon is good and inflation remains low, then an upmove in urban and rural consumption will happen, he said.  

The second half of this fiscal year will see higher value growth than the first half, he said, adding that some revision in pricing is expected in H2.

Below is the transcript of Saugata Gupta’s interview with Reema Tendulkar and Mangalam Maloo on CNBC-TV18.

Reema: How much of your overall volume growth of 10.5 percent has to do with your strategy of price cuts to gain market share because your international volumes particularly have done very well.

A: You need to look at volumes – form the Indian business, the volume growth is 8.3. In the case of international business, we have delivered a double digit volume growth. So, as far as international business is concerned, it is not about price cuts and in case of Bangladesh, it was a little bit of a lower base. And in other cases, where we have got of our issues right in the international business. In fact, international business has been, was struggling a bit two years back.

So, that has delivered the growth. As far as Indian business is concerned, yes, we have been taking proactive price cuts, but more than Parachute, the other reason the volume growth has done well is because Saffola, after some couple of quarters of single digit volume growth performance has started delivering double digit growth.

Youth business is back on track and value added hair oils has also been consistently performing. So, it is a mixture of all the franchises firing together.

Mangalam: While Parachute as well as the value added hair oils have also done well, Saffola has finally picked up. How are you reading the performance for each of these segments with their prospects over the next two quarters?

A: Parachute, we have been trying to ensure that pricing is right as also of course, the thrust on rural distribution continues. So, if we get our pricing right, which we currently have in a deflationary phase, I believe Parachute can deliver 5-7 percent volume growth in the near to medium-term although there could be certain volatility on a quarterly basis because of pricing.

As far as value added hair oil is concerned, we have been taking market share in the last 4-5 years. We continue to invest behind each of the franchises and we are now currently investing behind both premiumisation and hair fall and we are expecting double digit volume growth.

In Saffola, we have done three things. One is of course, we are having a regional pricing strategy. What has also helped us is that in terms of the relative pricing, we are now better placed than what we were 2-3 quarters ago and that is also helping us. And the new communication strategy in which we are trying to get a larger universe into our fold.

People who are more fitness conscious as opposed to just people who are very health conscious. That is also working well for the brand. So, as far as Saffola is concerned, there are three factors which are helping us. And we believe that if we can continue to get this act right, we should be able to deliver double digit growth in the coming quarters in Saffola.

Reema: So, Q1 once again saw the massive advantage of Copra as well as crude linked input prices coming down. As a result of which, your gross margins expanded by over 700 basis points. Do you expect margins to be sustainable or base effect will soon catch up.

A: I believe is a lot of cases it has bottomed out. And I think the base will catch up especially in the second half. And, that gross margin expansion, something will happen, maybe a little bit in the first quarter, but after that it will stabilise.

Mangalam: Could you also throw some light on your international business well as specifically Bangladesh as well as the performance seen there?

A: Subject to no major geopolitical black swans, we believe that the international business should be able to deliver double digit constant currency growth across all the markets.

Reema: You ended FY16 with a revenue growth of nearly 7 percent and net profit growth of nearly 26.5 percent. What is your outlook on revenues and profitability for FY17?

A: So, the way it is panning out, what is very critical is how the performance of the monsoon because the consumption will pick up in the second half of the year. The first half will be a little tricky because there are also deflationary pressures and there will be lower value growth.

But if we believe that if the monsoon is good and food inflation remains low and the quarterly economic growth data continues to be robust, second half, there is no reason why urban and rural consumption will start picking up and also, there could be some price increases as planned in the second half.

So, I would see a situation of lower value growth in the first half, higher value growth in the second half and we should endeavour to deliver 8-10 percent volume growth.

Reema: Has rural demand picked up or is it still stretched?

A: The consumption situation is a little stressed especially in the states which have been affected by drought for two consecutive years. And therefore, a monsoon is very critical and for the rural demand to pick up and it will pick up if the monsoon is good sometime around August September and beyond.