FMCG firm Bajaj Corp reported 24.95 percent increase in standalone net profit at Rs 46.77 crore for the second quarter ended September 2015, helped by lower expenses. The company reported a net profit of Rs 37.43 crore in the same quarter a year ago. Sumit Malhotra, MD of Bajaj Corp, says the second quarter traditionally is weaker than the first quarter and hence volume growth too is lower than Q1.
He says the Q2 volume growth is largely driven by Bajaj Almond Drops and Brahmi Amla. He says the company has over 60 percent market share in light hair oil segment. However, real recovery in volumes may come only in the fourth quarter, he adds. Malhotra also says ayurvedic hair oil category has been seeing a healthy growth.
Below is the transcript of Sumit Malhotra’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Can you enlighten us a little bit about the volume growth and how does it compare with previous quarters?
A: The volume growth is a little less than the first quarter, but if you look at our results over the last five years that we have been in the listed space, second quarter is always a little less than first quarter. This is basically because of the rains and the downturn in terms of purchasing. This year it is slightly more peculiar because Diwali is delayed by a month and therefore, the kind of uptick that you get during Diwali is now going to come in October instead of September.
If you read behind the volume growth, and the volume growths are approximately 8.3-8.4 percent, the larger part of that comes from our hair care, or the hair oil, Bajaj Almond Drops, which has grown by around 6.5 percent, which is lower than what has been over the last two or three quarters, obviously much higher than the downturn that happened last year.
On a quarter-on-quarter (QoQ) basis, it is more or less the same. There is not much difference. On a year-on-year (YoY) basis, last year second quarter versus this year, the growths are much better in the hair oil industry. So, yes, I would have liked to say that there is an upturn, but I do not think there is really substantial evidence to back that kind of a claim as yet.
Sonia: Compared to a lot of peers, it is still a better performance. So, tell us what the second half of the year will look like. Will you be able to maintain this 8.5 percent volume growth?
A: Yes, I think I will be able to maintain it though the base is much higher last year, in the second half. But going by the figures now, you should see a better second half, though the real recovery should happen in the fourth quarter or early next financial year. You will not see the erstwhile 17-18 percent that we used to be growing in the next two quarters. So, yes it will go up marginally, but not to the previous levels._PAGEBREAK_
Latha: To what extent would you blame the subdued volume growth on rural slowdown or lack of demand? You have very powerful competitors who have actually gone, products which have gone on to stronger hands. Indulekha has gone on to the Hindustan Unilever's hands. Kesh King has gone to the Emami's hands. These were even as local brands, big competition and now, big branding power behind them. What is your market share in almond drops?
A: We currently have 61 percent in value and 60 percent in volume market share within the light hair oil, but now we have changed our paradigm and we look at our market share within the total branded hair oil, where we are around 10.3 percent and we are the second largest hair oil after Marico’s Parachute. So, good things but much long way to go yet.
You are talking about Kesh King and Indulekha, this category has been very vibrant. We call it the Ayurvedic hair oil category. This has been very vibrant for the last four or five years and the peculiar thing about this is the market leaders in this category keep on changing nearly every second year. So, last two years, it was Kesh King, now, Indulekha is doing well, but this is still a very small category, it is just 2 or 3 percent of the volume of total branded hair oil sold in India.
Sonia: Tell us a little bit about what your margin expectation is going ahead because you are sitting on a healthy 31 percent margins as of the quarter gone by. How much do you expect it could do in the next couple of quarters or the second half of the fiscal?
A: A large part of our margin depends on what we call the light liquid paraffin and the next largest component is what we call the vegetable oil which is a refined mustard oil, whereas the light liquid paraffin prices are actually going down sequentially, one because of crude and second because of the demand that is there.
Vegetable oil prices are actually going up, but what we have been doing over the last two years is they have been buying forward. Now, we are actually stocking forward. So, we have got enough stocks to last us the third quarter of this year and having a look at those prices, the gross margins, this is currently at around 65, should improve marginally by around 50 or 100 basis points in the next quarter.
Latha: What kind of an overall volume growth can you finish the year with and specifically in the second half, what might the volume growth be?
A: We normally do not give guidance.
Latha: No, directionally.
A: Directionally, you will not see major differences, for example, the first half of this year, we have got a volume growth of around 10 odd percent and value growth of 12.5 percent for the first half. I would wager to say it will go up marginally again, but not substantially. I do not think you will the 13-14 percent volume growth in the second half.
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