Unseasonal rains may affect rabi crops and prices may rise, thereby impacting rural growth, is the word coming in from Vivek Gambhir, managing director, Godrej Consumer Products. He says rural growth has been a concern over the past few quarters. However, he says last quarter rural growth pick-up was faster than urban growth.
A few other things may also work in favour of rural growth - changes made in the Budget. A lot of the schemes augur well for rural consumers, he adds. According to him, net-net if benefits kick in sooner, rural consumers may be in for a better couple of quarters.
Gambhir also assures consumers that he will pass on the benefits of commodity price decline. Though future price cuts will depend on competitive intensity, he adds.
Below is the transcript of Vivek Gambhir's interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.
Reema: Do you see rural consumption getting impacted in the coming quarters because of what is happening on the back of these unseasonal and untimely rains and therefore the impact it is going to have on the rabi crop?
A: This is something we will have to play a little bit of a close watch to because rural growth has been a bit of a concern over the last couple of quarters. On the other hand, because of some of the crop damage it could lead to a little bit of a price increase. However, over the last quarter or so, rural growth has been increasing faster than urban growth. So, in that sense while the urban recovery has been sharper, rural growth has been holding onto its own.
The key question will be is to what impact does the Budget changes actually have as far as rural growth is concerned because some of the initiatives announced by the government augur very well for the rural consumer particularly with regards to infrastructure spend, it will lead to more jobs as well as there is a slightly higher allocation for subsidies and better targeting of subsidies. So, net-net if those benefits kick-in sooner it should still mean a good couple of quarters for rural consumers.
Sumaira: You have seen softer input cost as well plus there is a fear that rural consumption may take a bit of a hit. Would you look at any sort of price cuts in this current quarter?
A: Certainly what is important for us is that whatever benefits we get from commodity price declines we do intend to pass on a portion of those benefits to our consumers. So, in those categories where we have seen some benefit, we have already passed on about 6-8 percent pricing benefit to our consumers.
What happens in the future will depend on the level of competitive intensity because typically when commodity prices come down it can lead to higher competition and more promotional expenditure. However, in spite of that I think we will definitely try and see if we can pass on more benefits to our consumers to be able to kick-start the consumption cycle. Even after having done that we are quite optimistic that our profit growth will be quite strong in the quarters ahead.
Reema: Can you tell us on a blended basis what the total price decline has been on the price cuts that the company has undertaken so far on a blended basis?
A: There have been two main benefits of commodity price decline. One is in the cost of palm oil and second is on crude oil. A lot of the palm oil benefits have begun kicking in and that impacts our soap portfolio. So, in the soap portfolio we have taken or passed on benefits of about 6-8 percent to our consumers.
The crude oil benefits have just begun kicking in. Those benefits will be more materialised over the next two or three quarters and as those benefits come in we will figure out what the appropriate level is to pass on to our consumers.
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