In an interview to CNBC-TV18's Sonia Shenoy and Anuj Singhal, Saugata Gupta, MD & CEO of Marico spoke about the results and his outlook for the company.
Below is the verbatim transcript of the interview.
Anuj: We will start with your international business. Company's headwinds continue there and that is where the topline miss came from. When do you expect recovery there?
A: The way to look at it is you have to take out the Middle East, North Africa part of the business which is actually around 25 percent of the international business which translates into 5 percent of the overall business. So, there are headwinds. There are consumption headwinds in both, Middle East and North Africa.
In addition to that, there was a significant devaluation of the Egyptian currency. So, I believe that we are ensuring that we tide over these conditions and things will begin to improve in the back half of this year because by that time, the anniversarisation of devaluation and also the consumption downslide that started in some of the Middle East markets will get sorted out.
In addition to that, there are some of our obviously, internal issues in Egypt in terms of trying to get in the face of higher input cost with high devaluation getting some of the price increases in because as you know, in Egypt the inflation is now hitting 20-30 percent. There are a lot of public utilities which has gone up by that kind of a level. So, there is a consumption challenge.
So, we have to sort out the pricing and the other issues there. And I believe that things will be back on track at least under control in the second half of the year. As far as the first half of the year is concerned, I think we have to start getting constant currency growth.
Sonia: So, what kind of constant currency growth can we expect in FY18?
A: In the overall international business, I think we should be getting double digit constant currency growth next year.
Anuj: Now, to the India business, 10 percent volume growth was above expectations, but will it sustain?
A: The way to look at it is as far as we are concerned, we are gunning for 8-10 percent volume growth. Having said that, while GST will lead to far more long-term advantages in terms of both the economy for the consumer as well as for organised players like us and in the immediate term, there would be some kind of a transition hiccup which could happen in the first half of the year.
As far as the second half is concerned, we already have a low base of demonetisation in Q3, so overall, we will continue to gun for 8-10 percent. There could be perhaps, higher growth in the back half of the year as compared to the first half because during transition time, there would be some kind of a destocking in the system, but that does not impact consumption. GST could have some issues on pipeline rather than consumption.
So, those are temporary hiccups which we have to cope with.
Sonia: So, that is the volume growth, 10 percent that you have done this time, but what kind of price hikes have you taken in FY18 so far and what would the price hikes be in the remaining part of the year?
A: We have taken already 8-9 percent. We might have to take a little more, we will wait and watch how the raw material situation in copra pans out and if necessary, we will take a little more. I must realise that we are, if you look at history, we are far more advantaged during inflation times and deflation times because a lot of unorganised competition work on costs plus. So we are okay with that and as I said, post the demonetisation, the push on compliance and the GST, it will give us a far more level playing field versus both the unorganised and the local branded players.
Anuj: Does that mean 18 percent revenue growth from FY18?
A: I think it could be anything between 15 and 17. As I said that the 8-10 percent was a price hike, but you have to see from a point to point. Yes, we should be able to, I would be happy if we can cross the 15 percent topline growth, yes.
Sonia: This quarter, the margins were aided by lower ad spends. So, what is the sustainable level that you see for the next year?
A: As far India business is concerned, before the pre-allocation of corporate costs, a 20 percent plus kind of a number is what we believe is the best in terms of optimal number to maximise volume growth and market share. And we continue to hold on to a medium-term overall blended margin growth for the entire business including international, overall margin of around 17-18.
Anuj: Outlook for Saffola in FY18 because volumes were a bit lower here, just around 6 percent?
A: One of the segments where we were not present in which is the super-premium segment, we have made our first foray. You might see some more action there. Therefore, I think the overall Saffola edible oil portfolio we should be able to look at a number around 10 percent.
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