Himadri Buch & Anubhav Sahu Moneycontrol News
In an exclusive interaction with Moneycontrol, Saugata Gupta, Managing Director and Chief Executive Officer of Marico outlined the aim to deliver 13-15 percent revenue growth over the next three to four years with 10 percent contribution from volume growth. Margin tailwinds, he said, would be better utilised in investment for new products.
Listed below are the key takeaways from the conversation in which he laid emphasis on the importance of various distribution channels such as e-commerce, direct reach, chemist channels.
Rural growth remains ahead of urban, but some softness visible
The company’s earnings have gained over the last few quarters from the uptrend in rural growth compared to urban. Pace in rural growth was also aided by base effect. However, Gupta noted in recent times the impact of monsoons has been patchy. For instance, some parts of Maharashtra and Central India had insufficient rainfall. Intended trickledown effect of the minimum support price (MSP) was also not observed. Hence, there were pockets of rural economy which would require a close watch.
E-commerce as a channel was emerging with over 2 percent share
Gupta explained the differentiated strategy of capitalising on various channels. He said, “ The way to look at e-commerce is that it is an opportunity. If you drive premiumisation…... It is important to drive different portfolio through both modern trade and e-commerce channels…”
Additionally, new products are tested on this platform. For instance, True Roots was tested with Flipkart. It is another way of test marketing a product and so a substitute for consumer research for launching a product.
Business mix to change towards premium segments
Marico wants to reduce dependence on Parachute and Saffola and drive new things in the premium segment. Engines of growth like male grooming, serums, hair nourishment and foods are expected to have a significantly higher share in the next five years.
Focus on direct reach and chemist cosmetic
The company would continue to drive on direct distribution in the rural markets. On urban grocery, the company is well in line with major FMCG players. However, he said Marico is under-indexed in the chemist cosmetic sub-segment (premium part of the portfolio) when compared to other personal care companies and specialty food companies. Therefore, the new portfolio will such that it drives growth in chemist cosmetic sub-segment.
Large-scale players to capitalise the post-GST opportunity
Gupta said, “ As the compliance level increases, it (GST) will give a level playing field but the other trend that is happening in the post-GST scenario and with e-commerce modern trade going up is that we are seeing structural changes in distribution. The criticality of wholesale as a sector will come down. Companies with direct distribution and sales will have a competitive advantage in terms of ability to operate and wholesale coming and also the ability to take supply chain advantages—if you look at the number of warehouses coming down or automated supply chain logistics."
"There is lot more transformation happening in distribution, go to market, supply chain logistics which has been bought just not because of GST but because of market dynamics. For eg. Automation in technology distribution today. So a lot of changes are happening in the CPG market to capitalise. At the mass market, large-scale players will be able to capitalise. "
Internationally focus is towards the east
He said the company is targeting a move towards South Asia and South East Asia in the international market. It is less bullish about Africa and the Middle East because of both complexity and short-term consumption trend.
Benefits from deflationary copra cycle to be mostly invested
Currently, the company benefits from the start of a deflationary cycle in copra pricing. Copra normally follows 18-24 month cycle and it is already in the 3rd or 4th month running. He said margin expansion is not the focus at the moment. Instead, there are a significant number of new products in the pipeline and Marico thinks there is a good opportunity to invest in them.
Long-term and near-term growth to get support from high single-digit volume growth
In the current year, the company aims to deliver 8 percent volume growth on an annualised basis. On a medium term of 3-4 years, it expects revenue growth of at least 13-15 percent. This would be mainly be aided by volume growth of 10 percent with 2-3 percent price inflation.
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