Adi Godrej, chairman, says demand in the FMCG space remains good and hopes good monsoon rains this year will further fuel rural demand. The rupee depreciation, meanwhile, is likely to increase its raw material costs to an extent.
Godrej Consumer Products doesn't expect any major slowdown in the fast moving consumer goods business, despite the overall slowdown in the economy.
The company has been growing at around 20 percent and it hopes to maintain that this year, Adi Godrej, Chairman, told CNBC-TV18.
The monsoon has also started on a good note, he said, and hopes that will further fuel rural demand.
Below is the edited transcript of his interview to CNBC-TV18.
Q: The most important question now is the rupee depreciation. How does it your company? You have imports like palm oil, don’t you?
A: The rupee depreciation does, to a certain extent, increase our raw material cost. We have also borrowed in dollars for our acquisitions abroad, which we have to pay back from the earnings.
But our international businesses’ earnings are reasonably dull or denominated. So their earnings in local currency increase when that currency depreciates or earnings decrease when the currency appreciates.
It will not affect us very much. The rupee has been depreciating for the last two years; it has not affected our performance. Our company has done well. However, I expect the rupee to appreciate over the next few weeks now.
Q: You have given us a qualitative sense but can you quantify the impact even ballpark?
A: No, I do not think it will be any material impact. Generally our growth in both sales and profits will continue as before
Q: What about demand? Do you see consumer demand slowing down for your products while your Q4 numbers were good? Has the fast moving consumer goods (FMCG) space across the board has seen both demand as well as revenue pressures?
A: We grow in India at about 20 percent in our FMCG business. We expect to continue to do that in Q1 and the rest of this year. Demand is good.
Our products are doing well, we are in fact gaining market share in most of the categories we are in. So we do not see any major slowdown and expect strong performance in the last financial year will continue into this financial year.
Q: The monsoons have started off on a good note. Will decent monsoon make a seminal difference to your company? How dependent are you on rural demand?
A: The monsoon has started off exceedingly well. Almost all of peninsular India has got good rains. Sowing has started well and monsoon clearly is a positive for business because in rural India demand increases with a good monsoon. So that is a positive.
Even last year when the monsoon was bad, we grew at about 20 percent. So, we could grow even faster.
The good monsoon is also excellent for our company called Godrej Agrovet, which is a subsidiary of Godrej Industries. There, a good monsoon has very positive effects on the business.
Q: The Godrej consumer management has been speaking about innovative products. Can you detail your market share in hair colour in particular where innovation is maximum? Also your market share performance in home insecticides and soaps?
A: Last year our share in household insecticides grew very considerably. We are by far the leaders in the field. Our share at the end of the year was almost 50 percent of the market.
We are number two in soaps after Hindustan Unilever Ltd (HUL) and in hair colour we are leaders. But we lost a little share over the last couple of years.
In the last quarter, our share increased. Our growth was very good, we have introduced a lot of innovative products which have done very well. In this quarter, we are growing very well and in this year, our share will grow very considerably in hair colour too.
In household insecticides and soaps, we continue to do very well. Our growth rate in our FMCG business have been much above the average growth in the FMCG sector or in our categories.
Q: Can you update us on your inorganic ventures? Will it be as pronounced in FY14 as in the year gone by? Is there anything on the table that you can speak about?
A: We have grown very considerably through acquisitions in the last few years. Our compounded annual growth rate (CAGR) growth has been over 30 percent in the last three years. We have acquired businesses; we will continue to add to our acquisitions.
We have a major acquisition agreement in Africa called Darling, which operates in 14 sub-Saharan African countries. We have already completed the first 51 percent acquisition in several of these countries. We will add some more countries in this financial year.
Then over the next three-five years we have options to buy the balance 49 percent too. So that will continue to grow.
Last year we acquired a company and hair colour business in Chile. We will continue to look at acquisitions which add value which improve our earnings per share (EPS) and we expect to grow inorganically too.
Our objective is to be 10 times our size in 10 years time which is a CAGR of 26 percent. We expect to have an organic growth rate of around 15-20 percent and the balance would be inorganic.