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Big piece of rural economy will be place if monsoons are normal: Kataria

A part of the over 120-year young Godrej group, Godrej Consumer Products, is one of India’s most reputed companies. The company is a leading player in personal care products and has more brands than you can count on your fingertips. Sunil Kataria, chief executive officer, was recently down in Goa for a three-day business event. In the interview with Serilda Coutinho, he speaks on the company’s performance and prospects for the near future

With financial year 2018-19 just finished, how was the year for the company?

We will declare the fourth quarter results by first week of May. Till the third quarter that ended in December 2018 we saw that the demand was reasonably good. The first half was very strong for us and we saw double digit growth in the first half. Little softening is seen in the rural demand in the last two -three months and that is a change happening more in the rural areas than in the urban. If you see across the year our growth has been lead by personal care business. Especially in the first half the soaps have done very well for us. In January we reached the highest ever share for our rich crème hair color. The non household insecticide segment had done very well for us whether it is air care, fabric care or personal care.   At a global level we are around Rs 9,000 crores plus market. Last year had seen a much less price growth that the earlier years so I will say that the growth in 2018-19 has been primarily led by consumption and volume.

 

What are your expectations from the current fiscal year?   

We are hoping that the softening of demand in the rural areas is a bleep. From stability point of view the economic outcome depends on the result of the elections because a new government comes in place and if it a strong government you will see a stronger financial policies being set. The other variable that is very critical in India is monsoon because a large piece of the economy is still dependent on monsoons for agriculture. There is a seasonality link of demand to the monsoons and some segments do get affected. But apart from that monsoons have a larger piece to the economy impact because if the monsoons are good it leads to a good farm output and this leads to rural consumption which in turn impacts the overall consumption.

 

How important is the Goa market to you and where is the state placed in overall sales?

Goa is a relatively smaller market for us compared to the other states. It is a trend leading market when it comes to hair color business as the state is an international destination in itself. Second it has a lot of floating tourist population. The fashion and trend setting piece can be lead by Goa since it has got a large imagery creation destination I think that is where it gains importance in terms of hair color business. Among product segments the personal care and hair care business is doing better than the rest.

 

How do you expect the Goa market to be in future? What will drive growth?

There are two parts for Goa market consumption. One is the local consumption and the second is the season consumption where a lot of floating population comes in which is little difficult to estimate. Goa in any case has been leading in the personal care and fashion side of the business so that is where we expect growths to be faster. We have seen that the Goa market has something unique, that is while the rest of the country is lead by kirana stores, Goa has a good mix of the general stores and self-service stores. In fact a trend that one sees across the country is that the self- service stores and the modern trade stores are growing much faster than the kirana stores. It is a very clear phenomena which is happening and reflected in alternate channels growing much faster. Goa’s trend setting capability and presence of self service stores that help consumers to interact with the products directly by reading the contents on the packaging will help to drive the growth.

 

Do you have manufacturing in Goa or are there plans for it? 

We have a third party vendor in Goa for our brand HIT. We are not looking for any capacity expansion immediately in this side of the country. We have a lot of plants with excise benefits in the north east. Post GST the regional excise benefits are gone but with the growth we are seeing we will have to expand capacities. The next capacity which we expand would be completely open and lead more by direct cost in the region rather than excise benefits. Whether it is the western region or the southern region all will open up because now we will depend on which product we are considering for capacity expansion and which are large markets for us.

 

Are you contemplating a hike in prices of your products?

These decisions are very category specific. Right now we are not seeing any price inflation coming in for soaps. In fact we are seeing a price deflation for soaps and that is where the game will be primarily volume lead. Other categories will be evaluated based on the quarterly estimates.

 

With rural demand very important for future sales, what are the key dynamics that will drive rural demand?

We are hoping that the monsoons are normal in India then a big piece of the rural economy will be in place. Second our hope is on the Union Budget that was announced a few months back with huge rural boost in terms of stimulus that now is in the middle of getting disbursed. From our end the focus will be on rural distribution and brand building. We are sensing that there is definitely a liquidity crunch surfacing in some of these hinterlands. While the overall monsoon may have been in the normal zone we have seen that the monsoon pattern has been very skewed. The southern and the eastern part of the country are seeing much more distress because these regions have seen lesser monsoons than the north and the west.

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