GCPL looks at re-launching soap portfolio going forward

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Godrej Consumer Products (GCPL) reported a 54% year-on-year growth in consolidated fourth quarter (January-March) net profit at Rs 142 crore, as strong sales and consolidation of various acquisitions erased pressure from rising costs.

The fast moving consumer goods company's consolidated net sales for the three-month period were up 96% on year to Rs 999.50 crore.

Adi Godrej, Chairman of GCPL, in an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, gave his view on the much awaited RBI's policy announcement and gave his perspective of the fourth quarter performance and their divulged future plans.

Below is the verbatim transcript of the interview. Also watch the accompanying videos.

Q: RBI decision will seminally impact producers, consumers, manufacturers, borrowers, lenders as well. It is a half a percent rate hike that has been announced by the Reserve Bank. Additionally, savings back accounts will earn you not 3.5%, but 4%. We spoke to SBI, Bank of Baroda and ING Vysya said that costs will be passed on, which means money will get expensive. What do you think? Do you think capex gets hit? Do you think home buyers will now hesitate?

A: Where the interest rate is going up, it will slow down both capital investment and home buying to a certain extent. It would not be catastrophic. However, this is the time when the NDA and UPA must come together and get the goods and services tax legislation passed.

It is a legislation that could reverse the entire scene, whether it is inflation or the rising deficit and can solve a lot of the countries' problem and add 1.5-2% points to our GDP growth. We have a very good solution.

Unfortunately, political differences have kept this legislation from coming through and creating the great growth potential the Indian economy so much needs.

Q: Do you think you will be able to grow at the same rates that you grew in FY11? If any attack on inflation rates, do you think you will still have the courage to pass on higher raw material prices, now that you see a possible resistance in terms of demand? Do you think pricing power of industry ends or at least declines now? Will you think before passing higher raw material prices?

A: Today's announcements will not have much of an effect on the FMCG sector. Godrej consumer products have had a stellar year last year. We announced our results yesterday. Growth has been very high.

Our sales growth for the quarter was 96% and profit growth was 55%. Our acquisitions have been highly accretive. RBI policies won't way negatively affect GCPL's progress. We expect to grow quite considerably, both organically and inorganically.

Q: Not only GCPL, but you have Godrej Boyce and a wide range of products under you all the way from real estate to consumer goods to consumer durables. Are you getting a sense that producers will be hesitant to pass on the hikes? There is a certain ease with which industry and the producer community has passed on the higher prices. Do you think that ease will decline and that passing on of higher raw material prices will become difficult for India Inc in general?

A: There isn't any reason to believe that cost increases will not be passed on because there is a rate hike. I don't see the correlation between one and the other.

Cost increases have to be passed on otherwise, industry will become inefficient and its ability to invest in the future will be affected. The cost increases are mainly commodity led. It's a global phenomenon. It has very little to do with the dynamics of the Indian economy.

Q: What kind of price hikes can we expect on the annual in different sectors from here on in the new fiscal in order to combat the high cost?

A: We can handle the inflationary impact of costs. One is to raise prices to a certain extent and the other is to improve our efficiency. We continue to do both. We improve our efficiency in manufacturing, sales and therefore, are able to pass on less of a cost increase than we would otherwise.

Our margins are expected to be good. One of the reasons why our margins look a little lower is because we have made several acquisitions. When we do acquisitions, our margins do come down because the cost of acquisition has to be debited. Otherwise, our margins have been very strong.

Q: In terms of Godrej's growth in FY12, what will be the main kicker in volume growth in terms of segment wise performance?

A: First is continued consumer confidence and secondly we have been doing a lot on the innovation platform. For example, we have recently re-launched our expert range of powder hair colours with two new formats. It is the biggest re-launch we have ever had in this category in the last 25-30 years.

We expect very strong results from this re-launch. The first consumer feedback has been very encouraging and we hope it to continue. We also plan to look at re-launching our soap portfolio.

Last year, we re-launched lot of our household insecticide portfolio. On the innovation and marketing renovation front, there is a lot of work going on. We expect to see strong results from that in financial year 2012.

Q: You have been a close watcher and a veteran of the real estate space as well. What is your analysis of how the demand will change now that there has been this hike? There is an expectation of many more rate hikes to go as well. Will this seminally impact the end-user demand in the industry?

A: Not necessarily. This is the ninth hike. We have had several hikes. It does have a marginally negative effect on consumer demand. The way property demand goes, is that if the costs go up, people tend to buy that is less expensive. This is how they are able to finance.

Demand will generally continue to be good, because there is a shortage of housing in this country. This varies from geography to geography. Mumbai has been a little affected because earlier prices rose to quite a high level and that dampen the demand.

With mortgage rates likely to rise, it might have an effect. In Mumbai, people will go for little lower cost housing rather than not buy new housing when there is demand. Any demand for investment purposes could be negatively affected. This is a small fraction of the total demand of the country.