Poor rains may wash way rural growth in Q2: Godrej Consumer

A Mahendran, MD, Godrej Consumer Products, says that in the FMCG space there are impulse categories and the slowdown will have a bearing in the coming second quarter due to poor monsoons. 

According to the infomation from the industry forum and players there is down trading in certain categories. Broadly, speaking inflation and many factors are resulting in this trend.
Except East, drought conditions are prevailing in some states in the North, South and West. In discretionary categories, there could be an impact in the second quarter, because overall there will be an impact on rural income as well as surplus disposable income in the rural households, which will in turn have a bearing on the overall spending or consumption.
We have been consistently reporting double digit plus growth for more than six quarters in household insecticides segment and we don't see any reason for the slowdown. In the last one and half years, we have been posting a better growth in the soap segment ahead of the market. He also says that the international growth rates are above expectations. Below is the edited transcript of his interview to CNBC-TV18. Q: Due to drought have you noticed any consumer down trading trend. Do you see trimming of rural demand or consumers are shifting towards cheaper products?
A: In the FMCG space there are impulse categories and the slowdown will have a bearing on impulse categories in the coming second quarter due to poor monsoons. 
Except East, drought conditions are prevailing in some states in the North, South and West. In discretionary categories, there could be an impact in the Q2, because overall there will be an impact on rural income as well as surplus disposable income in the rural households, which will in turn have a bearing on the overall spending or consumption. Q: Your first quarter numbers are pretty strong but within the FMCG basket, was there any category in which you already saw some pressure building up?
A: We have not seen any slowdown in all the three focused categories. The growth is good and healthy. Q: Whether consumer down trading has already begun? Could you throw more light in terms of trends of consumer down trading, if at all in certain categories of FMCG products that you are seeing at this point?
A: According to the infomation from the industry forum and players there is down trading in certain categories. Broadly, speaking inflation and many factors are resulting in this trend. Q: How exactly the inventory and the creditor days have panned out for the industry, are we witnessing any signs of intensifying working capital cycles at this point?
A: So far, there has not been any impact on working capital cycle because of slowdown or any other factors. Q: In this quarter, volume growth in soaps and household insecticides has outperformed their respective category growth figure. The hair color segment has been the only drag. Are we likely to see any improvement in this segment's performance going forward? Is this kind of outperformance in soaps and household insecticides sustainable?
A:  We have been consistently reporting double digit plus growth for more than six quarters in household insecticides segment, and we don’t see any reason for the slowdown.
In the last one and half years, we have been posting a better growth in the soap segment ahead of the market.
As far as hair color is concerned, because of the base effect we have reported a lower growth in this first quarter compared to last year first quarter. We have made improvements, innovative products and re-launched. We expect to a good growth rate in this segment and achieve our forecast for the year. Q: How does the inventory looks ahead of the festive season?
A: My feedback is not subdued across categories in the FMCG. There is a healthy build-up in terms of sales as well as inventory holding across categories. Q: In particular in this quarter the export performance has surprised the street on the upside. This time what are the driving factors for the international business and which geographies have done well for the company?
A: I would say that it doesn't come under the word exports, because we have acquired businesses in the Far East, particularly Indonesia in 2010 which is doing extremely well and the growth rates are healthy. Categories like household insecticides, baby care and hair care products are growing healthy, brands are doing well and the market share is improving in this region.
We have invested in Africa and we are seeing good rate of growth in all the acquired assets. In Latin America, we have acquired business in Argentina and Chile, both are doing well. In Argentina, there is some dip in growth in hair color segment but that is seasonal. The UK business, which is a part of Europe, is also tracking very well. President Shashank Sinha is managing international business very well. International growth rates are above our expectations.