Godrej Consumers will focus on organic and inorganic growth opportunities: Sameer Shah
Sameer Shah, Head -Finance and Investor Relations, Godrej Consumers talk about Q4FY21 numbers, announcement related to joining of Sudhir Sitapati, margins, Demand situation, interim dividend, debt situation, borrowings of the company and product pipeline among others during a candid chat with Swati Khandelwal, Zee Business
Sameer Shah, Head -Finance and Investor Relations, Godrej Consumers talk about Q4FY21 numbers, announcement related to joining of Sudhir Sitapati, margins, Demand situation, interim dividend, debt situation, borrowings of the company and product pipeline among others during a candid chat with Swati Khandelwal, Zee Business.
Q: Congratulations on the good performance in Q4FY21. The market is strongly cheering the announcement related to Mr Sudhir Sitapati. What would you like to say?
A: I think, our performance has also been quite strong and if you have a look at the fourth quarter to begin there has been a 27% growth and it is a broad-based growth, geographically, in India, it has grown by 35%, Africa by 30% and good recovery was seen in Indonesia. Margins have been mixed a bit as we have seen margin expansion in few geographies and a drop in India but will mitigate it in the medium term as well as in long term, the market should be all ok. We are very excited to have kind Sudhir Sitapati joining us as an MD & CEO in the month of October. His experience has been impressive and he comes with 22 years of experience from HUL and has managed a lot of categories in the past from personal wash, fabric care among others. So, we expect that the overall growth potential of GCPL will be unlocked with his arrival and we will be able to see even stronger growth going forward as compared to what we have recorded in the past years.
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Q: You have talked about the margins. Has the company has not been able to pass on the increase in the cost of raw materials? What is your outlook for the margins and prices because you will have to factor in the commodity prices?
A: I think, within the commodity, the impact is coming from the vegetable oil, which is an ingredient in the soap. We have seen stability in it in the last one to two months and expect that it will remain stable at the elevated levels in the next couple of months. We have taken calibrated price increases in soaps and strategy has been good and if you look at it then our soap performance has been quite good and we have registered 40% growth in soaps. In fact, last year, overall soap growth stood at 16-17% and market share gains have been quite good. Going forward, we will continue with this calibrated strategy. Small and local players are highly stressed in the current environment, due to which the market share gains should be very good. In the rest of the portfolio, we will evaluate the pricing opportunities. Judiciously, we will make marketing investments and sales promotion spends. At the same time, we will accelerate the cost-saving programmes to mitigate this gap. For the very short time, it will be our strategy and in the midterm and long term, we are not quite worried about the margins and I think that on a full-year basis, we will be able to maintain our margins in the overall global level.
Q: The March quarter has been good when it comes to demand, but can you give us a sense of how has been the demand in April and May, especially during the days of lockdown, last time we saw panic buying by consumers, is there any such situation now, how is the current demand (Month on Month)?
A: April was quite good for us. The momentum that we saw in the fourth quarter has continued even in April. And, May, June let’s see how it shapes up. There are two to three things, frontline servicing and store refilling have turned a bit difficult because the opening hours of the stores are very short and the feeders at the ground, the sales zone are also quite limited at this point of time because of the lockdown restrictions. The backend supply chain is quite geared up, so, this time, I think that will not be an issue. We have seen and are also seeing that in April there was a tailwind in many categories like soaps and hygiene and we have also experienced it in April. And there are some categories like discretionary categories are recovering like air freshener, fabric care and health colours. Health and hygiene make 70-75% category for us and tailwind will be there in it and this was our experience after the first wave. And, there will be a bit of delayed recovery in the rest of the portfolio but it will recover and we have seen it during the unlocking process after the first wave. So, let’s see how the thing shapes up in the short term, but generally, we believe that staples will be steady during the course of the year. In fact, if seen last year then with all the challenges of lockdown in April and May, our overall growth stood at 14-15%. So, relatively, we are optimistic that on a full-year basis, we will register a double-digit growth and April has been good for us as I have informed you earlier.
Q: In around February 2021, the company had cancelled the interim dividend it was supposed to give and the board has not recommended any dividend yet. Is there any special reason for not paying the dividend as this is the first time since 2007 that the company has not given a dividend?
A: It has been our strategy and if seen historically then the free cash flows of the business are used either in rewarding the shareholders through dividend or buyback or to pay the debt that we took to acquire the international businesses and put it into the CapEx organically and also evaluate the inorganic growth. So, there were the options that we had for the last 4-5 years. There was quite an uncertainty last year due to which strategically we took a call to repay the debt that we had. If you have a look at our balance sheet, it is very healthy; the net debt-equity stands at 0.7. So, the strategy has been very good and the EPS has also been good because when interest expenses are low, your EPS remains good. So, in the medium term, the strategy will be the same of repaying the loans and the free cash flows will be utilized either in rewarding the shareholders and/or in parallel if we have any organic or inorganic growth opportunities then utilize it.
Q: We are seeing that the borrowings of the company has declined to Rs 480 crore v/s Rs 2145 crore last March ~ What’s the plan, is the company planning for a debt-free status, if yes then when? Also, when do you think the process of rewarding the shareholders will start?
A: The current debt levels – our net debt, I mean, after cash as of March-end – is likely to be paid by the first half and free cash flows are good enough to repay the net dent that we have as of March-end. As I informed that it will be used in debt repayment, rewarding the shareholders and if on the way, we get some growth opportunities – organic as well as inorganically – then it will be deployed there.
Q: How is the product launch pipeline and where the company will focus in FY22?
A: The product pipeline is very strong. If we have a look at the innovation and rate metric, which is a good indicator of new launches, last year it stood at 18% in India. We expect that it will be 20% plus this year. So, new product launches will be there. If you have a look at the hygiene segment, which scaled up significantly last year, then hygiene sales in India were 8% and it was all created over the last 12-15 months. Going forward, we have strong plans to scale up hygiene. In the existing categories also, we will see a number of new product launches. And even in international markets, especially Indonesia, we will see interesting launches and it is going to be a busy kind of year on the front of product launches.
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