Moneycontrol
Last Updated : Jan 12, 2018 04:39 PM IST | Source: CNBC-TV18

Aim to launch new product every quarter; rural volume growth a concern: Bajaj Corp

The rural demand is expected to come back by April, May post the Rabi crop, government initiatives in terms of MSP & other likely announcements in the Budget, said Sumit Malhotra, MD, Bajaj Corp.

CNBC TV18 @moneycontrolcom

Bajaj Corp posted a weak set of earnings in the third quarter ended December, 2017 as ad spends were on the rise. Growth in revenue however was supported by other operating revenues

The company reported marginal decline in its Q3 profit, while revenue increased by 11 percent. The company's Q3 (Oct-Dec) net profit was down 4.5 percent at Rs 55.2 crore against Rs 57.8 crore, in the same period last year. Meanwhile, revenue of the company rose 11.3 percent at Rs 208.1 crore versus Rs 187 crore.

Sumit Malhotra, MD, Bajaj Corp in an interview to CNBC-TV18 clarified that the decline in profits was not due to ad spends but more due to other income falling by Rs 9 crore on account of large treasury book.

The company has a large treasury book of around Rs 480 crore and returns from that came off, which accounted for mark to market (MTM) losses, said Malhotra.

Talking about the business outlook, he said the total company volume growth is 5.8 percent, whereas almond oil has grown by 8 percent in domestic business, said Malhotra, adding that once the recovery in rural growth takes place, the volume growth will be in double-digits.

He said business is coming back to normal post goods and services tax (GST) and Patanjali competition. The urban market growth is coming back and the Ayurvedic hair oil segment was the lowest growing segment in Q3.

However, the rural volume growth is a cause of concern. In hair oil volume growth is down to 2 percent and in light hair oil it is down to 9 percent.

The rural demand is expected to come back by April, May post the Rabi crop and government initiatives in terms of MSP and other likely announcements in the upcoming Budget.

However is upbeat on the overall growth for the company on back launch of new products through their innovation centre going ahead. Every quarter they plan to a lunch a new product, said Malhotra.

Bajaj Corp Ltd is part of Bajaj Group which has interests in varied industries including Sugar, Consumer Goods, Power Generation and Infrastructure Development. It is one of the leading player in Hair oil category with brands like Bajaj Almond Drops Hair oil, Bajaj Brahmi Amla Hair Oil, Bajaj Amla Hair oil and Bajaj Jasmine Hair oil.

 

Below is the verbatim transcript of the interview.

Latha: If you can first begin by telling us what went wrong at the profit level, things are okay with revenue and EBITDA, is it only ad spends?

A: No it is not ad spends. If you go through the numbers, you will find that the other income has dropped by around Rs 9 crore odd and that is largely because we have a very large treasury of around Rs 480 crore and the returns have come down substantially over the last year. Also under the new accounting standards, which is the IND-AS, you have to account for mark-to-market losses in every quarter. So you have a notional loss of around Rs 4 crore within this Rs 9 crore loss in treasury income. So if you add that back, then you will see a much better like-to-like comparison because like you rightly pointed out, EBITDA has gone up by around 11 percent and actually ad spends would depress EBITDA and not PAT alone. PAT is actually depressed by the other income.

Sonia: I wanted to get bit more details on the volume growth because this time around the volume growth has come in at just about 4.5 percent. There were expectations that it could be about 10 percent in your almond hair oil segment, by when do you think we could return to at least high single digit volume growth?

A: Again the numbers are a little different. The total company volume growth is 5.8 percent whereas almond has actually grown by around 8 percent by volume in the domestic area. So, we are nearing that double digit, and once we see some kind of a recovery in the rural growth, you should see this hitting double digit numbers also.

Latha: Generally how is business? It has gotten confused because of Goods and Services Tax (GST), so can you tell us that there is a greater shift from unorganised to your kind of demand or is it that the Patanjali variety is creating more competition and therefore depressing demand. Overall, for the four quarters, how would you categorise demand?

A: I think you have rightly said it is basically confused because one, a lot of people have reacted to GST in a very different manner. Each of your channel partners is finding it difficult in its own way to kind of take into consideration GST and come up with a profitable way of doing business. To add to that, you have various other problems such as the rural areas not growing properly and also the large factor of Patanjali. However, all-in-all, I would say that business is coming back to normal especially the urban areas you are seeing growth much more than you saw in the last eight to nine quarters.

In fact of Patanjali, it is sort of petering off in the hair oil segment and the ayurvedic hair oil segment is actually one of the lowest growing segments in Q3 of this financial year. The big question mark currently is the rural area. If you look at the total hair oil, the rural volume growth is just down to 2.1 percent and within the light hair oil where we are the market leaders, is down to 0.5 percent and that is very poor. Till that comes back, growth within the hair oil sector will be a cause of concern.

Sonia: Just to wrap up, if you can just tell us what the different launches are in the haircare and the skincare segment? You have come out with a new plan for the company, but it is more qualitative, if you can tell us exactly what the launches would be and what the revenue potential could be?

A: Obviously I cannot talk about the launches until it really takes place. However, what we are aiming to do is launch a product every quarter. This quarter we launched what we are calling the Ayurvedic Bramhi Amla Hair Oil to basically look at the ayurvedic hair oil segment which is a new and upcoming segment within the hair oil space. We would be launching another brand in January of this year. All of this is happening because we now have an innovation center or an R&D center setup in Mumbai and we are trying to move towards the innovation culture in not only the marketing area but also the various other areas within this company and that kind of a culture will see a shift in the speed of launches and possibly the amount of investment that we will be taking up behind this new initiatives.

Latha: Finally, is the disruption of the marketing, stockists, etc. because of GST over? What you said about rural demand was a little scary, do you see rural demand returning, afterall we have had a decent monsoon?

A: Rural is not only dependent on monsoon. It is also dependent on the kind of latent spends that are there in the rural area. For example, the higher spend in the rural area is actually the repayment of debt. If you have consecutively two bad monsoons, and then you start coming out into an area of good monsoon, you would probably take around at least two or three quarters more before the rural starts coming in. I expect the rural demand to start coming back sometime in April-May post the rabi crop and the initiatives that the government has taken in terms of MSP and possibly the various initiatives that they will announce in the Budget on February 1.
First Published on Jan 12, 2018 10:30 am
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