India's consumption story to revive in H2FY17: Experts

The company hopes to maintain a double digit growth in value added hair oil segment, he said.

K Ullas Kamath, Joint MD of Jyothy Labs, said that rural demand depends on good rains and government support and is hopeful for the second half of the fiscal to be better than the first.Below is the transcript of Saugata Gupta and K Ullas Kamath’s interview to Sonia Shenoy on CNBC-TV18.Q: What is the feedback on the ground? This quarter was very good for you in terms of an 8 percent volume growth. But is this something that you can sustain?Gupta: If you look at the total picture, rural is still stressed, because of the fact, as Gautam alluded to, two consecutive years of drought and there has been in certain states, stress on consumption. If you look at it, the second half of the year, because we have had a good monsoon and we believe that there is likely going to be a pickup in the rural and the second half of the year. Also urban, there are green shoots, a combination of the fact that if there is low food inflation, consecutive quarters of decent economic growth, some of the stimuli that might come from the Seventh Pay Commission payouts. So, the second half for the sector is going to be slightly better than the first and I believe that the pickup will start happening in October.As far as our volume growth is concerned, yes, 8 percent -- our endeavour is going to be to maintain this growth and maybe if the consumption picks up in the second half, try to go back into 8 percent plus.Q: When you say you will maintain this 8 percent plus growth, is this despite the kind of competitive pressures that you are facing because in the key segments like value-added hair oil, where the volumes have grown very well, there is fierce competition, especially from the likes of Patanjali, etc.Gupta: The question is as long as you continue to innovate and ensure that you have a play at both ends, but the premiumisation at the bottom end of the pyramid, there is enough growth to be had. The sector is changing in terms of premiumisation with categories like hair fall growing and similarly, there are enough opportunities in rural where three-years ago, our contribution was 25, today we are 33 and there is enough headroom for growth. So is a double digit growth in the value added hair oil segment manageable in the short-term to medium-term? The answer is yes.Q: There has been an increase in budget spending by the government for the rural sector. It has been raised to Rs 36,000 crore, so there will be more funding into irrigation schemes, crop insurance, etc. does this have any correlation with demand for some of the consumption pockets like yourselves and is this your expectation as well that the second half will be better than the first half?Kamath: Absolutely, you said it right. In fact, entire rural is depending basically on the rainfall and then the government support in most of the schemes like social sector schemes or what it used to be in the past. It definitely helps them get the money in their hands, primarily it will go for food and thereafter it goes for non-food items where all of us will play a prominent role in fast-moving consumer goods (FMCG). The last quarter has been good for us, we grew about 10 percent and currently, based on this rainfall, we are a shade better in the rural market. Urban is growing at about 12-13 percent for us, but rural is around 4-5 percent.Q: The other thing that is working very well in your favour is the way you have seen a gross margin expansion. Your margins picked up quite a bit to about 21 percent this time and gross margins peaked at about 52 percent. We have seen the best of Copra prices, the best of liquid paraffin prices. Do you think that it will be a bit tough for further margin expansion from here?Gupta: Let me give you our overall philosophy. We operate in emerging markets and luckily even our home market, India, is a invest-to-grow emerging market. For us, volume growth market share and leadership is far more important and we believe that margins happen with skill. Now the issue is that as long as the margins are in the 18-19 percent operating margin range, we are pretty happy as long as we maximise volume growth and market share, because margins automatically come.In the second half and going forward, obviously the input costs, the kind of benefits that will flatten out, but what will happen is hopefully higher volume growth and once the anniversarisation of the price cuts happen, we will start getting some back some value led growth. For us that is more important and as long as margins are within a threshold level, there is something we do not look at.