High ad-spends have hit operational performance: Pidilite

Below is the interview of Sandeep Batra, CFO, Pidilite Ind with Latha Venkatesh and Ekta Batra on CNBC-TV18.

Latha: Let me start with the bad news first because your company normally does very well on the topline. There has been a pressure on margins, what is the reason and will it persist?

A: What had happened in the quarter is that our sales growth for the quarter has been inline with what has been the growth for the first nine months. However, because of higher spend on advertising and sales promotion expenses in this quarter our performance at an EBITDA level has been lower than expected. So, the main reason for the lower growth in EBITDA is higher spend on advertising and sales promotion.

Latha: Will that persist? Will you have to persist with these kind of ad spends or the spends made are likely to last the year and you will see ad spends falling in the current and next quarter?

A: They will fall in the coming quarter. What we have seen in this quarter is a bunching up of several expenses on media which will not recur going forward.

Ekta: Can you just breakup what the performance was within the international business as well as the domestic business in terms of volumes and maybe even parameters on a better performance, which geography held up more for you?

A: As far as the domestic business was concerned, our sale grew by 15 percent of which about 11 percent was led by volume and remaining was price led. As far as the overseas subsidiaries were concerned, they grew in constant currency terms by about 14 percent, so, very similar to the growth in the standalone business.

However, the positive takeaway from the overseas subsidiaries was the continued performance in our largest overseas venture, in Brazil, which for the third quarter in a row reported 20 percent topline growth and significantly reduced losses in Brazil.

Ekta: Would you be looking to expand further into the international markets, maybe more capex coming up in Brazil?

A: We don’t require capex in terms of capacity. We had a bad year last year as far as Brazil was concerned. So, some amount of this is a recovery of what we would have lost last year and some new market share gains that we would have made.

Latha: What is your forex foreign income and domestic income breakup?

A: Of the consolidated sale, about 89 percent will be domestic and 11 percent would be overseas subsidiaries.

Latha: What is the kind of sales growth or revenue growth you can forecast for say FY15?

A: We as a company don’t give any guidance.

Latha: An approximate, even if you can give a directional call. Is growth likely to improve significantly?

A: Any change as far as growth rate is concerned would be linked to how the overall economy plays out.

Latha: Do you see things turning around? Do you see demand improving? So, should FY15 for companies like your be better?

A: We are not seeing any significant changes in the demand environment.

Latha: How will the margins pan out in terms of raw material because your gross margins also were a bit flattish or under pressure? Are raw material costs pressuring or easing?

A: In dollar terms, costs have fairly been steady. The full effect of the rupee having weakened played out in the third quarter. So, going forward at least on the input cost side and with the rupee-dollar remaining at present levels we don’t see much volatility. Volatility if any will come once the dollar prices of raw material starts moving.

Ekta: What is the volume growth that you would possibly envisage within the domestic market? You spoke about around 11 percent volume growth that you saw this time?

A: Our growth rate in the last quarter has been 11 percent in volume terms.

Ekta: So, what is the volume growth that you envisage for the maybe next one or two quarters or the foreseeable future according to you? Would it sustain at 11 percent, would it do better, would it come below 11 percent?

A: By and large similar to the first nine months result.