We see rural turning back to 1.4-1.5 times urban growth this year: GCPL MD

GCPL MD Vivek Gambhir
Godrej Consumer’s (GCPL) profit for the April-June period rose the highest in five quarters (it was 80 per cent) on the back of a deferred tax gain. While comparable net sales growth was 11 per cent, net profit growth (excluding one-time gains) was still 36 per cent. Vivek Gambhir, MD, in an interview with Viveat Susan Pinto, explains what led to this quarterly performance and the way forward. Edited excerpts:

What has contributed to the 36 per cent net profit growth before exceptional items?

The key to growth has been gross margin expansion besides a good control on costs. For the quarter under review, gross margins expanded 270 basis points. When viewed over multiple quarters, our gross margins have expanded well. The contributing factors have been our portfolio mix, cost savings programme, and benign palm oil prices.

But will gross margins continue to expand with inflationary pressures growing. The favourable base that you got in the June quarter will also begin to fade after the July-September period. 

For the 2018-19 financial year, we feel comfortable we will be able to drive profit growth ahead of sales growth and deliver margin expansion. There might be some volatility, but we remain positive about the year. From a portfolio point of view, we will have a higher mix of profitable products, driven by a strong innovation agenda. We continue to work on cost savings initiatives, which should show good results in the third and fourth quarters.

How worrying is the volatility on the crude front. Some of your competitors have called this out as a risk when declaring their June quarter numbers?

The two big inputs for us are palm oil and crude. On the palm oil front, the outlook is not worrying for the next six months. On the crude front, we would have to wait and watch. There is too much volatility, we will take calibrated price hikes, which should aid value growth.

What kind of a mix in terms of volume and price-led growth do you see in the coming quarters?

Around two years ago, volume-led growth was two-thirds and price-led growth was a third for us. While we may not go back to those numbers, given the competitive intensity and the judicious approach to price hikes, volume-led growth should be around 85 per cent and price-led growth should be around 15 per cent of overall top line growth.

Your global business saw a 7 per cent sales growth on a constant currency basis in the June quarter. What contributed to the recovery?

Indonesia is recovering quite well. It is a mixed story in Africa. Nigeria did well. Kenya is recovering, but South Africa is a concerning factor due to tough macroeconomic conditions. While the picture for Indonesia remains positive, the team managing the Africa business is confident the latter will recover in the second half of the year.

Your outlook for the FMCG market.

The FMCG market this year should grow in double digits. Our expectation is that it will be in the 10-12 per cent region this year versus 8-9 per cent last year. Around 9-10 per cent (of the overall market growth) will be volume-led growth. There should some price-led growth in the second half of the year. But a lot of overall market growth will be led by a recovery in rural. If you look at our business in the June quarter, urban grew at 13 per cent; rural at about 17 per cent. We see rural turning back to 1.4-1.5 times urban growth for the industry this year.

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