"Our approach has always been consumer-centric" - Views on News from Equitymaster

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"Our approach has always been consumer-centric"

Jan 18, 2005

Mr. Milind Sarwate, a Chartered Accountant, Cost Accountant and Company Secretary by profession, was with Hoechst India Limited and the Godrej Group before he joined Marico in 1998. He is the Chief Financial Officer, in charge of the core Finance functions as also Information Systems Function, Legal and Secretarial of Marico Industries. Mr. Sarwate is also a member of the FMCG sub Committee of the CII (Western Region). In an interview with Equitymaster, Mr. Sarwate shared his thoughts on the Indian FMCG sector, the secret of Marico’s success and its vision going forward.

Eqtm: The Indian FMCG sector is facing tremendous pressure, both economic and competitive. In your view, what are the ground realities for the FMCG players in India currently? What can the industry look forward to in the coming years?

Mr. Sarwate : An important ground reality for the FMCG players in India is the need to keep innovating around consumer needs. In the recent past, many players have probably ignored this area and have focused on the competition or the trade at the cost of the consumer. This could have contributed to the growing clout of regional and/or smaller players who are able to offer a better product to the consumer, leveraging their knowledge of the consumer from close quarters.

An interesting observation, which you may want to drill down further, is that the Indian FMCG industry seems to have shown reasonable resilience with respect to imported products. Few years ago, it was widely apprehended that the flood of imported products would wash away a large part of the Indian FMCG industry but that kind of a nightmarish scenario has not at all materialized. This indicates that a local player is always at an advantage as compared to a non-local player.

Another ground reality is that the FMCG sector has to fight for a share of the consumer’s purse, with other emerging sectors like telecom, financial services etc. Here too, innovation can help the sector to get closer to the consumer and thereby grab better share of her purse. The FMCG industry can thus look forward to a steady growth if it is able to contribute to the consumer on a sustained basis.

Some other drivers of growth for the FMCG industry are the exceptionally high industrial growth, which would push up disposable incomes in the urban areas, as also the statistically likely turn around in agriculture next year.

Eqtm: Marico has done well over the past few years despite enhanced competition in your key categories of coconut oils and edible oils. What do you attribute this performance to?

Mr. Sarwate : Marico’s approach has always been consumer-centric. We believe that if we focus on providing continuously improving value propositions to the consumer, we will automatically be able to win over the competition. We have accomplished this through a slew of new products in the past few years. In fact, the share of new products in our turnover has moved up from just about 2% four years ago to about 18% now.

Eqtm: One would argue that your core category of 'coconut oil' is not showing enough volume growth. What are its growth prospects going forward?

Mr. Sarwate : The Coconut Oil (CNO) category (branded plus unbranded) has not been showing significant volume growth. However, if one goes by macro factors like the share of branded CNO market to the total CNO market, the scope for the branded franchise to grow continues to be significant. Thus, over the past 4 years, Marico’s CNO franchise has grown at a CAGR of 7%-8 %.

The habit of coconut oiling could be under pressure in some parts of the country. But because of its basic efficacy, it would certainly not go away and in fact, as the consumer starts demanding more and more natural avenues of personal care in the wellness and Ayurveda space, a completely natural product like CNO would surely experience a growing franchise. We therefore expect that the CNO category will keep growing as the penetration of branded products increases and there is growing awareness of the efficacy of coconut oiling.

Eqtm: The share of new products in your folio has risen consistently in the last few years. Will this trend continue? If yes, then what areas will Marico look at to provide stimulus for growth?

Mr. Sarwate : We expect that our focus on developing and sustaining new products will continue. In addition to products, we have recently diversified into services through Kaya Skin Care clinics. We expect that this will help us to not only move up the value chain but also plough back learnings from services into products. We are thus looking at the entire gamut of products and services in the areas of Beauty and Wellness to leverage new stimuli for growth.

Eqtm: Your international business has grown from strength to strength. Please shed some light on this performance and the strategy for growth going forward?

Mr. Sarwate : Marico’s international business was set on a high growth path in late 90’s, since when it has been chalking out annual growth rates of 30%-40% on a sustained basis. As the base increases, the growth percentages may taper off but we expect our international business to contribute an increasing proportion to our total turnover. During the financial year ending March ‘05, we are targeting a turnover of Rs 100 crore in international markets. This will put us at the top of the list of Indian FMCG companies’ present overseas.

We had launched our international business with the idea of catering to the needs of the Indian diaspora worldwide. However, as we tasted success, we gathered confidence and have now developed products for the needs of the locals i.e. Non-Indian in foreign territories. E.g. in the Gulf, we have a Parachute Coconut Cream made especially for the local populace. Our growth in the international business will increasingly come from such tapping of local consumer needs.

Eqtm: Let's talk about Kaya. How has been your experience so far? How do you see this business evolving? What will be its role in Marico's future growth?

Mr. Sarwate : Kaya was an entrepreneurial leap of faith when we moved discontinuously from Hair Care products to Skin Care services. This leap seems to have landed right. Our experience has been in line with our initial dreams. We now have over 20 clinics in India and 2 in Dubai. Our plan is to take this number beyond 30 by March ‘05 and thereafter, may be to 50 by March ‘06. We expect that the Kaya business will evolve into a strong service franchise, fairly unique one at that, in India and abroad. We also expect Kaya to be a major driver of Marico’s future growth.

Eqtm: What is your vision for Marico Industries with a 5 to 10 year perspective? What will be the management's strategy for growth going forward?

Mr. Sarwate : In the next few years we plan to grow in a sustainable and profitable manner in the branded Fast Moving Consumer Products and Services in the Beauty and Wellness Indian Sub-Continent.

We are typically not a sloganeering company. However, if I have to loosely express our goal, it would be to keep moving up the value chain through products and services aimed at consumers in the space of beauty and wellness.

Eqtm: What will be your message to the Marico shareholders'? What can they look forward to?

Mr. Sarwate : Over the past 3 years, Marico has provided significantly above average total shareholder returns. It will be our endeavour to maintain the track record, move up the value chain and deliver sustainable profitable growth.

Eqtm: On the personal front, what are your interests besides Marico (any books, hobbies)?

Mr. Sarwate : My pastimes are typically Indian - Cricket, Movies and Politics. I like to listen to News and Indian Music as also read across a wide range of subjects, especially literature that helps towards “Self Actualization”. During leisure times, I like to just “be” with my family- wife, two daughters and parents.

Eqtm: Any personalities you look up to...

Mr. Sarwate : There are many that have influenced me - it would be difficult to name only a few. Amongst “philosophers”, whose views have shaped my approach towards life, Stephen Covey tops the list. His ideals are certainly those I look up to.

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