See recovery in both urban, rural demand; volume growth to be better in 2018: Marico

Volumes for 2018 are definitely expected to be better than 2017, said Mariwala.

He said the two trending products like health foods and male grooming will continue to see investments because they are categories of the future.

When asked if lower edible oil prices would benefit them he said no, because the company is not so much into edible oil but higher copra prices have impacted their margins to some extent.

He is also hopeful of increase in rural demand next year on back of government reforms and focus on infrastructure etc.

Below is the verbatim transcript of the interview.

Latha: What would you look at as the big trends in 2018? Will this long awaited formal sector taking over informal sector be one of them?

A: Yes, I think we are seeing definite improvement in the overall business scenario in terms of demand. Both, urban and rural and it is a gradual improvement, it will take some more time. It may take more to more quarters for it to normalise, but the main pain behind the GST implementation is behind us. The government is also very proactive in terms of handling and ensuring that all the snags which were there whether it is related to the GST network or form filling or refunds, I think they are very proactive about it and they are going in a very organised manner to resolve all the issues of trade and industry. So I am very hopeful that I think the GST benefits will start flowing in next year.

Anuj: This other issue that I wanted to discuss with you, off late we have seen quite a bit of decline in edible oil prices, is that going to help companies like yours?

A: We are not so much in edible oils. Our oil overall contribution or sales of oil, Saffola is there but that just forms about 10-15 percent of our turnover, but Saffola is made out of safflower oil and in that case, we import a lot of safflower oil. We also source it from India, so I do not see too much benefit because of the fact that the overall contribution of edible oil is low. Number two, some of the edible oil which are consuming are imported separately also and coconut oil where we have seen a huge increase in prices, almost more than doubling 2.5 times the prices in the last 1-1.5 years. So that has impacted our margins to some extent.

Sonia: You fleetingly mentioned how rural demand is picking up. We have actually seen a couple of good years of monsoons, higher minimum support prices (MSP) prices, etc. Do you think pick up in rural demand could be the story of 2018?

A: I hope so because in the last two years, we were impacted by two big reforms. One is demonetisation and this year, it was goods and services tax (GST). And that had its own impact on the rural demand because of wholesalers not getting used to the reforms and they were impacted and I think that is settling down now. We definitely feel that all the other steps taken by the government whether it is infrastructure or roads, MSP, all that will help the rural demand and I am quite hopeful that the rural demand will increase in the next year.

Latha: One of your peers was telling us that sales channels got damaged because of GST and prior to that a little bit because of demonetisation, but more because of GST. Was that the experience and have you been able to put in alternative channels or refurbish the old ones?

A: The experience is yes that the channels were impacted more through whatever sales was happening through wholesalers to rural retailers because there was a certain fear of the unknown what will GST do to my tax planning. There were some issues to do with implementation and like form filling and most of them had to go to a chartered accountant to get the forms filled and that was adding to their costs. But I think things are settling down. I just read today that the government is now thinking of combining all three forms to one form and make it easier for the trade. And I am sure with all those steps taken, the rural demand will bounce back. Separately, for organisation which were impacted, we have taken steps to ensure that the rural distribution is handled directly via distributors and the role of the wholesalers to that extent, would get reduced.

Latha: Generally, your volumes did well. When you last reported numbers, you spoke about Parachute and value added hair oils growing by about 12 percent in volumes. Saffola volumes, that was lower at 3 percent, but other volumes have done reasonably well. How do you assess volumes? It is a little difficult because I guess, you also climb up the value added chain, but generally do you think volumes are picking up? Can we bet on growth in 2018?

A: I would say, definitely better than 2017 because of settling down of GST and demonetisation. So to that extent, last two years, because of big reforms, the volumes have had its own share of impact. So with the settling down of these two reforms, I definitely see the volume will bounce back for 2018.

Sonia: Two trends that I wanted your views in. Of course, Marico, has in the past, said that they will expand in these two categories. One is health good and the other one is male grooming. These two spaces have suddenly spurted on the growth charts. But, do you see Marico making a lot of fresh investments in these two spaces?

A: I do not handle day to day management of Marico. So to that extent, I would prefer if you confine your questions to macro issues, but just to answer the question, we have to identify newer categories and we have to make investments in newer categories and these two categories, male grooming as well as healthy foods are categories of the future because males are increasingly taking personal care products and overall there is high sensitivity to using healthy foods and healthy eating. So I think these are categories of the future. We have to be proactive and we have to be first movers in being there. So I reckon that we have to invest for the future and it may take some time. We have to take a long term viewpoint of these two categories and bet on the growth of these two categories.

Sonia: The reason I was asking you is it brings me to my next question about the long-term target that Marico has. You have spoken in the past about getting to a Rs 10,000 crore revenue by 2020.

A: I think you should ask the Managing Director of Marico. I am not the Managing Director of Marico. I mentioned it earlier that do not question about Marico.

Latha: I wanted this comment from you in terms of how India Inc would react. Today, SEBI is going to pronounce upon whether any defaulter should declare his debt, his default to the exchange within 24 hours. That rule was to become effective on October 3, but it got pulled back. It will probably be nuanced. As representative of India Inc, how would you react if all listed companies were told declare your default to the exchange?

A: If the list is long and there are some surprises, it may cause some degree of fear or psychosis in the market. It all depends on the degree of default and when can that get rectified. So to ask all the defaults to be rectified, I personally think that may raise a lot of unnecessary red flags. I personally think that it should be above a certain level and you can define the level, but even a small default for whatever reason, it could be a short-term aberration would actually unnecessarily create a lot of panic.