Adi Godrej sees GST, pay revisions driving consumption

When commodity prices were low, it has benefitted the group, he said, and after Brexit the prices took a beating and they are low now, he said. Below is the verbatim transcript of Adi Godrej’s interview with CNBC-TV18's Anuj Singhal and Sonia Shenoy..Anuj: The point I was asking is that we have seen fair bit of growth in consumption with the hope that will have good monsoon and this pre-panel recommendation. Do you think we are set for very high consumption growth over the next one year?A: Yes, things will change. But clearly rural demand was in pretty bad shape over the last three or four quarters that will revive quite well for various reasons. If the Goods and Services Tax (GST) is passed that could create a very good impression on the markets and by April 1 when it is implemented that could be very good for the economy, very good for consumption and very good for growth.Sonia: Can you try and quantify that for us. If the cabinet does clear the seventh pay panel report by tomorrow then say for a company like Godrej Industries what could the impact be on revenues because revenues have been extremely steady for the year gone by. You did more than 15 percent. What kind of growth rate are you looking at over the next couple of years?A: I am looking at an acceleration of growth rate by five percent points. With a good monsoon and with a pay panel implementation and it could be much more if the GST is also implemented.Anuj: A word on monsoon because till about three months back it looked like we will have really good monsoon and while chances are that we could still have a good monsoon there is some troubles in terms of distribution. What are your channel checks indicating specially in terms of rural demand growth?A: Monsoon is progressing very well exactly as it was predicted. It was predicted that the monsoon would have a slow start and then pick up fast. Now it is expected to reach all parts of India by early July as predicted earlier and the rains in July and August are expected to be very good. But what is really very encouraging is that the prediction is for three or four good monsoon because of the La Nina effect in the pacific ocean. So, that should be extremely good for the next few years.Sonia: You spoke about how the revenue growth for your company could exceed by about five percent because of the good monsoon situation and the pickup. But I wanted to understand operationally how things are looking now because your margins for Godrej Industries as a whole has been under six percent for a while. I understand that there is plenty of competition in the consumption space with the onset of Patanjali etc but do you think input cost pressures could also keep margins under check below that six percent level in FY17?A: Godrej Industries is a holding company. So, it is not right to see its numbers as signifying consumer demand. Godrej consumer products is what one should look at. We have had very good margins. Value growth has been low but volume growth has been good. Profit growth has been very good and we expect that will improve with the good monsoons, with the pay commission implementation and especially with GST.Anuj: Specifically for your agrovet business and chemicals business. What kind of year do you expect if we have a good monsoon?A: Agrovet will do extremely well. Agrovet suffered a little in the last financial year because of the second bad monsoon in a row. It has already shown good signs of pickup with the monsoon predictions being good and we expect it should have a very good year. Also in Godrej Agrovet we make two very important acquisitions which will kick in strongly this year.Sonia: For Nature's Basket which has been doing very well and Godrej Tyson as well along with Creamline what kind of growth rates do you expect for some of these businesses?A: We don't like to predict growth rates. All I can say is we expect better growth than in the previous year and we expect the general economy of the country also to improve. So, that will have its effects also.Anuj: We have seen quite a bit of volatilities in crude prices. From the lows there has been quite a bit of rally and now of course we have started to see a bit of decline as well. How is that going to impact your overall margin situation in some of the products which use crude and crude derivatives?A: When commodity prices such as crude oil, vegetable oils etc go down it benefits our group. However there was a period a few months ago where the commodity prices were at a very low level. They have risen a little from there. After the Brexit announcement again commodity prices have taken a little beating. But commodity prices are generally a little lower than they were a year ago. So, our group should benefit.