Sameer Shah, Finance Head, Godrej Consumer Products Ltd, talks about demand, price hike and its impact and expected price hikes, domestic product line and international business performance among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: Tell us about the way demand is panning out, urban and rural areas particularly, and which categories are looking more promising now?

A: If you have a look then this is the second running quarter for us where we have posted double-digit growth in India business. In the last quarter, we saw that the rural demand was strong and there was a gradual recovery in the urban demand. At the same time, recovery was seen in the discretionary category due to which our performance has been quite robust in value as well as volume-wise. Going forward, I expect that we will continue to clock a double-digit growth. And we can also invest in rural areas due to urban and discretionary recoveries and continue with the overall growth momentum.

Q: Margins have remained flat in spite taking the price hike in soaps. What led to it and what is your outlook on margins and volume growth? 

A: If you have a look then in the last quarter, our operating margin at overall level - by adding India and international business - has expanded almost 50-60 basis points. There was a contraction in the gross margins of soaps in India due to an increase in input cost - the palm prices are 30-35%. And the price increases we took were quite calibrated one due to which the oral gross margins have contracted but we have mitigated it to a great extent by leveraging other portfolios. Due to which, the operating margins have dropped by almost 70-80 bps in India, and we mitigated it with international businesses, where good operating margin expansion was seen. So, overall, we saw that our operating margins have expanded.

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Q: But commodity prices are going up. Should we expect more price hikes, if yes, in which categories it can be and what can be its quantum?

A: In soaps, we will see it in our portfolio, but the quantum will depend on the kind of increase we see in the overall raw material basket. But definitely, we will see it in the soaps not only us but even other players in the overall category will take price increases in soaps. We have had a strategy of calibrated pricing and it has been very favourable for us because we have seen back-to-back in two quarters, we have seen a growth of 14-15% and also seen the market share gains. So, we will continue with it but directionally, we will see a price increase in soaps. But in some other categories, at this point, input cost pressure is not visible.

Q: In the budget 2021-22, the government has increased overall taxes on Palm oil by increasing the Agri cess. What impact it will have on your business?

A: The budget announcements were on crude palm oil and what is imported in refine palm oil. And duty structures have not changed on the refine palm oil due to which status quo is the same as it was during the pre-budget stage. So, there is no change in it due to duties in the pre-budget and post-budget era.

Q: Update us on the domestic product line for the year and the areas of focus? Also tell us about the international market performance like Indonesia, Africa and what is your outlook on it?

A: Domestic product pipeline is quite strong, and innovation has been our keyword and will continue to be the same. if you have a look then very recently, we have launched smart spray aerosol in India. This is the first mosquito repellent spray that protects for around 10 hours. It is a low gas advance molecule formulation, and we are about to scale it up in very short time. We have also seen a good scale-up in the hygiene segment in India. We have seen that in the hand washes, especially the power to liquid hand wash has been quite disruptive. We have also entered the bathroom, floor and toilet cleaners' segments and it has also scaled up a lot in the last 3-4 months. So, this innovation product pipeline will continue to be in place. We work with a perspective of 2-3 years at least in the background to be in the existing categories and the new categories that will be entered in future. There is a metric, the innovation rate, that too has been very good for us as our innovation rate stands around 15-16%, which is a good metric and a good number. So, it has been very good. In the case of international business, our performance in African and Latin American businesses have been very strong, in fact, in Africa, we have seen a 15% growth and in 12-13% increase in the Latin American business. These growths were also profitable growth and the operating margins have also expanded well in the two markets. In Indonesia, we have seen a soft performance and our growth was flattish as the macro-economic factors were quite adverse in the country. They have seen an unusually long stretched COVID environment there compared to a lot of other countries. And, there our play in the air freshener category, which is almost one-third of our overall portfolio and is bit discretionary in nature category, due to which there is a gradual recovery. We have also launched pour soap in the country and in the last 7-8 months, the hygiene category has also scaled-up well in the country. So in a very short term, we expect that Indonesia will also move to the positive growth zone and in the medium-long term its growth prospects are quite strong and will be similar to its performance that lasted in the last 10 years.