Hope to beat FY16's 18% int'l biz growth this fiscal: GCPL

So, on the whole, we try and match the business with about a 20 percent marketing investment. Within that, you will see fluctuations across ads versus promotions, but by and large, we feel very confident that we will be able to sustain this kind of spend going forward next year. Also launched is very exciting innovations and through better overhead control management, we should be able to deliver profit growth that will either be in line or if not ahead of sales growth. 

Reema: While your point about strong volume growth is taken, this quarter we have seen aggressive promotions especially in your soaps division as a result of which while your domestic volume growth is 9 percent year-on-year (Y-o-Y), your value growth is only 6.5 percent. Is that a trend that will continue even in the coming quarter? If you could help us with that.

A: Our volume growth with offers was 11 percent whereas, our volume growth without offers was 9 percent. So, to that degree, only 2 percent of the growth came from offers. Now, the intensity of offers is really a function of the commodity prices and so particular in the soap sector, which as you know is fairly dependent on our palm oil derivative prices.

So, if palm oil prices go up, then we could see more value led growth going forward. If not, you could still see a certain amount of intensity as far as promotions are concerned, particularly in the soap market, but the flipside is it does lead to better profit growth. And so, as long as you are driving demand and delivering profit growth, it is not a bad idea to focus on volume growth for the industry.

Nigel: Let us talk about you international operations then. That constitutes close to around 40-45 percent approximately of your total revenues. Good bump-up there coming in from Africa, more than 25 percent growth over there. Is that sustainable? Even Latin America did quite well – 25-30 percent, you are getting on these kind of markets. Do you believe the sustainability will be questioned or do you think you can keep up this rate? A: The story on Africa is getting better and better by the day. If you look at our track record over the last 2-3 years, consistently, we have delivered 20 percent growth as far as Africa is concerned. We have a new acquisition Strength of Nature which we have acquired in the US as we leverage those products in the African market as our business gets scale, as our teams get more seasoned, you will see significant growth opportunities in Africa. So, we feel very confident that there might be a little bit of quarterly volatility in Africa, but by and large, the Africa story has just begun. And we see tremendous growth opportunities going forward.  Similar to Africa, you will continue seeing a lot of growth in our Latin America business and even in Indonesia where the macro economic situation has been very unfavourable, in an environment where the fast-moving consumer goods (FMCG) sector has been growing at negative rates, our team delivered 13 percent growth last quarter. So, internationally, we are feeling very good in terms of our ability to further scale up and drive growth in the business. Reema: So, in Q4, you had a constant currency growth of about 18 percent in your international business. Is that a growth rate that is sustainable or do you think you can even better it? A: The hope would be to better it. I think certainly, we have the brands, we have the innovation, we have the dream and we have the distribution in place to be able to further build on this growth. A certain amount of this does depend a little bit on macro economic conditions, but if macro economic conditions improve, we feel very optimistic to better this growth. Reema: What about your low cost inventory, how much of that are you carrying just to get a sense of what your gross margins could look like in the coming two quarters? A: Typically the largest component of the inventory that we hold is palm oil derivatives and we have covers for the next three or four months. So, as far as gross margins are concerned we are looking okay for the next one or two quarters. We have to see how the situation pans out in the second half of the year.

The situation as you know is extremely dynamic as far as palm oil is concerned and a little bit also depends in terms of the outlook for value led growth. So, to the extent you might see some price led growth return in the second half of the year. That will dictate a little bit in terms of how gross margins move up. For the next couple of quarters we are looking okay. Still question marks on the second half of the year.