Moneycontrol Be a Pro
Get App
Last Updated : Aug 08, 2016 03:26 PM IST | Source: CNBC-TV18

Marico expects Parachute volumes growing 5-7%

"Recovery on consumption will happen with seventh Pay Commission and One Rank One Pension (OROP) being implemented, which will trigger demand and bring the company more volumes," says Saugata Gupta, MD and CEO of Marico.

Marico's Indian business registered volumes growth of 8 percent in the first quarter of FY17 and this is expected to go up by the second half of the year, said Saugata Gupta, MD and CEO of the company.

"Recovery on consumption will happen with Seventh Pay Commission and One Rank One Pension (OROP) being implemented, which will trigger demand and bring the company more volumes," he added.

In an interview to CNBC-TV18, he said the company has initiated a weighted average price hike of 5 percent from July only on Parachute products assuming input costs move up.

Further, Marico's marquee product—Parachute— is one of the growth drivers and its volumes are expected to grow 5-7 percent, Gupta said, adding, Saffola and value-added hair oils will post double-digit growth every quarter.

Below is the transcript of Saugata Gupta\\'s interview to CNBC-TV18\\'s Upadhyay and Nigel D\\'Souza.

Surabhi: Volume growth overall I s up 8 percent, can it get even better from here? Can we see double digits perhaps over the rest of the year?

A: I think the recovery will happen on consumption only in the second half of the year. We believe a combination of a good monsoon which will lead to lower food inflation and also things like pay commission and one rank one pay (OROP) will trigger consumption demand in the second half of the year. So, the volume growth traction of moving to 8-10 percent will only happen in the second half.

Nigel: In that case, when can one expect a sharp pick up in revenue growth, will FY17 see double digit topline growth?

A: If you look at the deflation pattern, deflation will keep on coming down. So, the value growth kicking up will only happen in Q4 and moving into FY18 Q1.

Surabhi: The weighted average price hike has been around 5 percent from July, is this pretty much it or do you have more elasticity when it comes to pricing power?

A: We have just taken a 5 percent price hike only on Parachute. I think it was on the basis of certain input costs that is expected to move up in the second half of the year. I don\\'t see any more price increases given the fact that the input cost continues to be soft.

Nigel: Margins are at around 21-21.5 percent, do you think you can maintain them at these levels? What\\'s the guidance there?

A: Our endeavour will be to maximise volume growth and if there is a consumption tailwind to ensure that the value is given to the consumer always because we believe in any emerging market it is far easier to get back margins but far more difficult to get back lost consumer on volume loss opportunities. So, if you really look at it, I would rather say that while it is 21 percent, the margin expansion will keep on reducing in the second half of the year, simply because the input cost base from the second half of the year will keep on coming down. So, you have a situation of higher value growth but lower margin expansion. We have given a long term guidance. I think in the medium term we are most happy with 19-20 percent kind of a margin which is sustainable to maximise volume growth.

Surabhi: The second half perhaps we could see a little bit of a compression on margins, in which case it is important to talk about your ad expenses, because your ad expenses are going higher and higher from just under 10 percent, they have moved to about 12 percent of sales. Is this going to be a steady number or what will the trajectory be?

A: See, I think it’s best to see the ad spend over annualised basis, because they had varies from quarter to quarter depending on the initiatives, on innovation and other things. Having said that, we believe that the ad spends is more likely to become 11.5-12 percent annualised basis. Our entire focus is to continue to invest behind brands, talent and culture and innovation irrespective of the market situation, because we are here in for the long term.

Nigel: What kind of volumes do you expect from Parachute, Saffola as well as value added hair oil segment?

A: I think in the medium term, we are expecting Parachute to grow in the 5-7 percent. Saffola we are now pretty confident of maintaining double digit growth every quarter and in value added hair oils also I will expected to inch up to double digits and continue to gain market share.

Surabhi: So what about the actual contribution from Parachute and Saffola to total revenue?

A: I think broadly we give a number, but I think we will not get into the individual revenue contributions, but what see in the medium and long term is that Parachute contribution keeps on decreasing, while the value added hair ends in a new portfolio is growing up drastically.

Nigel: How much does your value added hair oil contributed to your total revenues?

A: I think it contributes significantly to the business and I believe that is one of the growth drivers.

Surabhi: That a large part of your revenue is of course coming in from Parachute and Saffola and both of these products are currently enjoying benefits of lower overall indirect taxes. What happens when goods and services tax (GST) rolls in?

A: I think it speculative right now to discuss GST rates, but what we are clear about is I think it’s an extremely good initiative over the near and the medium and the long term for the economy. It makes life simpler, it reduces a lot of system and the network cost and I think in a lot of categories we compete with unorganised players and small players and therefore far better compliance will lead to a more comparativeness as far as we are concerned.

Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
First Published on Aug 8, 2016 03:23 pm
Follow us on
Available On