See strong growth in FY14 margins and volumes: Emami

Personal healthcare product manufacturer Emami expects strong growth in its margins and volumes in 2013-14, said NH Bhansali, CEO of Emami Group.

The company has seen significant decline in price of key raw material menthol since last quarter. "From last quarter the prices has started easing and there had been an impact in cost of goods (COG) in last quarter itself. We expect this to continue in the current year also. So, there would be some margin expansion on COGs," Bhansali explained.

It sees some impact of rupee depreciation on packaging cost, however despite this, it expects margins to show improvement. 

Also read: List of consumer cos to hit from rupee depreciation

Following signs of improvement in international business, Emami expects strong volumes for the current financial year. The company currently operates in more than 60 countries including India, GCC, UK, Sri Lanka, Bangladesh, Nepal, African and the CIS countries, according to its website. 

The company, which had acquired Zandu brand few year ago expects prices of products to increase 4-5 percent in FY14.

Below is the verbatim transcript of the interview

Q: We have seen substantial decline in menthol prices on year-on-year basis coupled with the fact that Emami has undertaken some price increases. Could you walk us through what impact or benefit this will have on the margins of Emami perhaps in the coming quarter and even in general your margin guidance for FY14?

A: We expect the margins to improve this year and particularly this quarter. Gross margins have to improve. In fact since last two years the prices were increasing and menthol had also increased substantially. Petro products and packaging material had increased substantially.

However, from last quarter the prices has started easing and there had been an impact on cost of goods (COG) in last quarter itself. We expect this to continue in the current year also. So, there would be some margin expansion on COGs. But of-late because of rupee depreciation there could be some impact on packaging material but despite this there would be some margin expansion there.

Q: Net-net at the end of first quarter, if you combine all the factors in terms of raw material prices and rupee depreciation, will your margins remain unchanged or are you still likely to get some elbowroom to expand or will it fall?

A: It should improve.

Q: How much might the elbowroom be?

A: Difficult to guess as still three quarters yet to go.

Q: I meant the first half?

A: Because prices are very volatile even rupee is so volatile it is difficult to guess, but considering this kind of volatility one can expect margin to improve.

Q: Last quarter we had seen degrowth in your international business, it had fallen by about 12-13 percent. How is this quarter shaped up in terms of the international business, is there going to be revenue growth if yes, to what extent?

A: Last time also we interacted about international business that we were in the process of consolidation; we had taken some of the correctional steps also. From this quarter itself things have started improving and results are coming. We expect growth in this fiscal on international business and in this quarter as well. Some growth would come.

Q: In general what would your guidance be on the revenue front for FY14? You closed up FY13 with a growth of about 17 percent on your topline. Is FY14 going to be better than FY13?

A: We expect same kind of growth to continue. Last year has been a good growth for us. It was driven by volume growth; volume and value growth both and this year also we expect good volume and value growth in the same kind as it was in the last year. Therefore, good growth can be expected.

Q: Do you have any foreign loans?

A: There are some marginal losses but on net to net we have liquid assets. We have cash on the balance sheet. So there is no loan as such; there is huge liquidity available in the balance sheet. So, there is no impact as such on financials.

Q: You have undertaken a price increase for your summer portfolio. Could we expect further price increase in summer portfolio or perhaps you might increase it for the winter portfolio? Could you provide us an outlook?

A: We are expecting around 4-5 percent of price rise this year taking care of inflation. However, as the markets are volatile, we need to review it maybe after three-four months or so. So, as on date we expect 4-5 percent price rise for the financial year.

Q: What is the cash in debt on your books?

A: It is around 300 crore net cash on balance sheet.

Q: What is the size of the debt?

A: It is very less because after adjusting for the loans the net cash would be around 300 crore.

Q: I am asking you because does it mean that we expect you to look around for any acquisition, is there something on our radar should we expect in the first half of the year?

A: We are always on lookout for. However, we are looking at acquisitions which can add value to us. Our last acquisition was Zandu in the domestic market and we are always on the lookout of acquisition which should add value to us.

Q: Is growth back on the canteen store department side because that was under pressure in FY13. What is the outlook for FY14?

A: It has started improving; in fact growth has come back. It is inline with our expectation so far.  As far as our forecast is concerned, it is inline with what we had projected. So, we expect that canteen store department things are now stabilising.

Q: What were you spent for advertisement in current year?

A: Would be in the same kind of level at around 16-17 percent or so. It also depends on the kind of launches and re-launches we do and also the emphasis we put on our power brand. So, it would remain at the same level as it was. It may increase a bit.

Q: Any new launches?

A: We have recently re-launched 'Fair and Handsome' with 360 degree advertisement. All our brands are doing extremely well and the penetration levels are also low. We are putting lot of thrust on advertising and media for the existing brands. We did new launches in healthcare division and some of the launches are expected to come in the later part of this year as well.