My vision is to bring a double-digit volume growth for GCPL: Sudhir Sitapati, MD and CEO

Sudhir Sitapati - Managing Director and CEO - Godrej Consumer Products Limited, talks about Q3FY22 numbers, demand situation, the outlook for Indian and international market including Indonesia, volume growth, e-commerce platform and its contribution to the business, hygiene business, inflation and its impact, product strategy and his vision for the company among others during an exclusive chat with Swati Khandelwal, Zee Business.

Edited Excerpts:

Q: How has the quarter been for the company in both Indian and international markets and what were the important highlights and observations?

A: I will term it as a mixed quarter as the top line was 1% and our full-year anticipation is it should be in the double-digit. So, the top line optically is looking fine and is close to double-digit. But the volume growth has been low in this quarter and we are seeing a slowdown in the volume growth across the markets. EBITDA roughly seems to be a 200 bps dilution but in this, our gross contribution or gross margin is improving sequentially and we have invested a lot in advertising. So, the top line is good optically but there is a volume concern and the bottom line is not that good optically but underlined structurally we are happy with the bottom line. So, I will term it as a mixed quarter.

Q: What is your outlook for the domestic Indian market and the international markets and what kind of trends are visible especially there are issues in Indonesia and are there any green shoots, till when do you expect business to improve there?

A: The main thing of the outlook for the next few quarters for our industry is that the kind of hyperinflation we are seeing at present has not been seen in the past. If such inflation arrives, volumes contract. First of all the inventory reduces in the market because people hold fewer stocks. There are certain downgradation as there are pressures in a few categories. So, I say the main story for the next three-four quarters is hyperinflation and it is spread everywhere from the Indian market to the African market and Indonesian market. And, navigate the same over the next four quarters - sensibly both for the consumer because we don't want to pass on the hyperinflation in one shot to the consumers, this is a reason that the margins have been under a pressure. But at the same time, what is right for our business and shareholders is that we will have to take both together and this is the main challenge for next year. In terms of the Indonesian business, I think, it will take a couple of quarters. Even the macroeconomic situation of Indonesia is quite difficult through the COVID-period in fact in some ways worst than India. Our portfolio had some benefits during the COVID and when the COVID is living, it is facing some problems. I would say, a few quarters may be subdued in India but structurally that business is very strong.

Q: Your Branded volume growth is “zero”. Any specific reason for this and what is the outlook for volume growth?

A: We are studying that the markets across players, across all the markets based on the data that we have volume growth, has been under huge pressure and the reason is the hyperinflation. When the price goes up, for instance, a soap weighs 55 grams and if we reduce it to 50 grams then the volume reduces by 5 grams and this is something due to which the volume growth is looking small. Some of this may persist and a lot of it will come back over a period of time. So, I feel, the volume growth is also a few quarter phenomenon and the volume growth should come back.

Q: If you can give us a bifurcation of Urban v/s Rural markets. Everywhere we are hearing that rural demand is subdued. When do you expect it to improve?

A: If we look back optically, then in the quarters it seems that the demand is less. What happened during the COVID is that many shops in urban were shut but in rural, they were pretty functioning like normal. So, if we have a look on a two-year basis then there was a slowdown in both the urban as well as rural. Optically, it seems that the rural is more but as per my perspective it is an economic issue rather than a rural and urban issue. This is what I feel.

Q: Is there any downtrading, especially in rural areas?

A: Godrej's portfolio is a very mass portfolio due to which I cannot see such a downtrading with clarity and it is still an early date for hyper and friction. But if it happens and it may happen, I think, the Godrej portfolio is very well protected because Godrej operates in a mass of the portfolio, so that is not a major concern for the GSPL. It may happen to the market amid such a time of inflation.

Q: Now that things have opened up. How much of your sales are from e-commerce and what is the outlook for the same? 

A: Around 5% of our sale comes from e-commerce and the channel has been on explosive growth. Of course, during the COVID, it was quite explosive but if we will have a look at the base of COVID then it looks relatively muted but on a two-year basis it is quite healthy. Our opinion is that we are ultimately a branded products player and wherever consumers shop, we are the market leaders in our categories by and large and our products should be easily available and easy to shop for the consumers. So, it looks that a lot of consumers are moving on e-commerce and have a lot of investment on the front and will be focusing on it.

Q: You have said that certain businesses will be impacted due to the absence of COVID, for instance, the hygiene business. How big would you bet on the hygiene business as you are expecting 30% revenue from it by 2023 and is that plan intact and what are the kind of challenges that you are seeing in this business at this point?

A: Our hygiene business is largely our soaps business, which was benefitted from the COVID, but it is a large business and has 98% penetration in India and are available at a certain rate. There are few other businesses like the hand washes, so, if we have a look at it then on a two-year basis it continues to grow but on a one-year basis because the impact of COVID like work from home etc and on its basis it seems optical that it is not as good, but I do feel that post COVID hygiene consciousness in the country will increase. So, maybe a slight decline can be seen on the COVID basis but if seen on the pre-COVID basis, I believe that the hygiene sector will continue to do well for years.

Q: There are challenges related to volume growth due to inflation but are there any possibilities related to price hikes, although you have made certain increases in the recent past? Going forward, how will you protect the margins ad in which band do you foresee the margins?

A: On volumes for a few quarters I am a bit worried but on margins, I am reasonably bullish. As the things are quite volatile at present, so, one cannot talk about the future, so, unless another round of hyperinflation is not there, I think, the margins will get better from now. There are two types of margins, (i) gross margin and (ii) EBITDA, which also includes our investments. So, I believe that the gross margins will improve a lot over the next few quarters and EBITDA will have moderate improvement. Some part of the gross margin will be reinvested on the brands and bring back the volume growth. If you will have a look even at this quarter then sequentially our gross margins have improved and we have invested it in advertising and promotion due to which the EBITDA margin is looking a bit subdued. So, I strongly feel that the margins will improve unless there is another round of hyperinflation. If oil goes to $120 then your bets are off but if it remains where it is then I think, it should be better.

Q: What is your strategy for products in terms of what kind of new products, segments where you are seeing an opportunity and want to enter a domain where you are not present yet? 

A: It would not be right to speak specifically but if we talk in general perspective then the existing portfolio of Godrej has a huge opportunity for growth. So for the next few years, instead of distracting, we can work on our categories, for instance, Aer care, we have a brand Aer, which is growing quite fast and few people in India used air freshener in their living room or bathroom. So, we have to work to grow our existing categories and a lot of opportunities are prevalent and after this, we will come at the new opportunities.

Q: What is your vision for the company as you have settled well being six months into it? 

A: I have two hopes and they are:

(i) For the middle-class consumers in India and abroad across the emerging markets, we would like to democratise the benefits of health and beauty for them, as there are many expensive products. So, first-of-all, my vision is to take bring some of these health and beauty benefits from the top of the pyramid down for the middle class and lower-income consumers. This is the number one objective that I have.  

(ii) To create a global Indian consumer multinational in the next 10 years. 50% of the revenue of Godrej comes from abroad, so, from the business point of view, we want to create a world level company and if we can do this then it will make us very happy.

These are my two visions going forward from here.

Q: Have you kept any number or target for the company, i.e., where do you want to see the company in the next three years or so?

A: In terms of numbers, it would look weird because our volume growth was almost zero in this quarter but I think that the product portfolio of Godrej will meet its potential only when it will reach a double-digit volume growth. So, I feel this is the potential the company has but it seems difficult because we are at zero and historically is a 5% volume growth company. But if you will ask that do you have a target or not then I can just say that it is a vision and dream.

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