Marico's Masala Oats category to rake in Rs 100 cr in 1yr

Below is the verbatim transcript of the interview:

Q: Are you seeing any improvement in rural demand at all?

A: If you look at the last three years, rural growth has been the one, which has been doing pretty well. It was the urban growth that was a little dampener in the last two years. So I don’t see any change in the rural growth. What has happened is that the monsoon deficit is far lower than what was expected and that it concentrated in a couple of states. So rural will continue to grow but what is more important, we believe is that the urban growth is going to come back because that has been at a little bit slow especially in the discretionary side of FMCG and that is something that is expected to come back although it will be a gradual uptick in that growth with the improvement in consumer sentiment.

Q: Can you quantify that, what can be your volume growth for the current year? If you can give separate rural/urban figures, fine or an overall figure?

A: We have always said that there will be a gradual recovery. So if we can deliver 8-10 percent volume growth in the second half of the year is something we will be happy about. If you look at what had happened in the last couple of quarters in the sector - 6-8 percent was defined as a good growth. I think that should improve to 8-10 percent for the sector moving forward.

Q: A lot of analysts are very enthused by how you have been expanding your product profile especially some of these new products like Masala Oats which has been doing very well. Can you take us through what are the new segments that Marico will be entering and how are these products doing, the likes of Masala Oats, some of the new body lotions that you have launched etc?

A: I think we have enough on our table in terms of driving headroom for growth whether in our existing core business or some of the new products. We are very excited for Masala Oats because this is a category, which we have been able to deliver the right level of what I call a threshold level of erstwhile delivering health and the reason I think the category is the point of inflection, we are seeing this consumption moving from breakfast to in between meals at least in the case of adults. We have also launched some sweet versions of it, which is again healthy, and therefore we see this business moving into Rs 100 crore next year.

Q: Product wise, where do you see incremental growth coming, what will be the products that you will choose for incremental growth, will it be the grooming products for instance?

A: I think there is enough opportunity for the male grooming products, there is enough opportunity in the body lotion where we already have 7 percent market share and in the oats we have 20 percent value share and within the savoury oats, we are the market leaders with more than 50 percent shares.

As I said, the core business continues to grow whether it is Parachute, Saffola or the value added hair oils and it is important that the core business also continues to grow but these are the new big bets or the three new categories where we are and also we wanted to premiumise the value-added hair oil space in the medium-term. So I don’t think we want to enter in new categories. One of the things, mantra as we call it is, focus, do few things but do these things well and big.

Q: You did mention a while back that from the Masala Oats business, you are expecting about Rs 100 crore or so in the next year. What about from the new body lotions that Marico has launched, what kind of revenue runrate cold you expect from that new category?

A: We have around 7 percent market share and this category was growing at a certain rate and in the last two years there has been a slowdown in some of the category growths. So we will be happy if we get into double digit market share over the next two years.

Q: What is the likely strategy on realisations, on pricing? Are you likely to have the headroom to take any price increases in any of the products? If so, which and the margins therefore, what are you likely to deliver for the full year?

A: Marico has a blended margin, we have talked about 14-15 percent overall, which is the Indian and international business put together. Obviously, there has been some input cost hikes in the last two quarters that will stay for sometime. The short-term margin pressures could be there but the issue is about continue to deliver good growth and I think especially delivering more than 20 percent topline growth in the business given the fact there is a significant inflation component. We believe that as long as the majority of our portfolio continues to gain market share, which we are doing and we can deliver good volume growth. There could be one or two quarters of a little bit of margin pressure but that is something which we are not concerned about because as you know that some of the input cost are cyclical and it follows 18-month cycle and therefore it will go down in coming two quarters. So that is where we are.

What has also happened is international business we have had a significant improvement in margins and that gives leeway to India business in terms of having a sustainable margin to drive growth.

Q: Will you be taking any kind of price hikes to combat the higher coconut oil prices and if yes, within what products would you look at price hikes now?

A: We have already taken price hikes to cover the input cost. We don’t see any further upside in the input cost going forward although it is very difficult to forecast anything but we have now reasonable levels of sophisticated models of forecasting and we understand the category and the commodity well. So we don’t see any further price hikes in the near-term.