"We expect to grow 10% higher than the FMCG sector" - Views on News from Equitymaster

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  • Aug 23, 2002 - "We expect to grow 10% higher than the FMCG sector"

"We expect to grow 10% higher than the FMCG sector"

Aug 23, 2002

Adi Godrej – the name needs no introduction. As the man in charge of the Godrej Group of companies, he is quite well known. Under him, Godrej Consumer Products has seen a marked improvement both in performance and market cap in the last couple of years. We caught up with Mr. Godrej to talk about Godrej Consumer's journey so far and its prospects going forward. Mr. Godrej also clarified the reasons behind the buyback issue.

EQM: How would you describe the year FY02 for Indian FMCG companies? What are the ground realities for the FMCG players in India currently? What in your view is the way forward?

Mr. Godrej : I think there has been a slowdown in topline growth of FMCG companies in FY02. However, Godrej Consumer Products has grown well. Infact, we have grown ahead of the categories we operate in, as well as the FMCG sector as a whole. On the way forward, I see a good pick up in June and July generally in the FMCG sector. Despite the talk of drought, I believe that the FMCG sector will do better in FY03 in terms of growth as compared to FY02.

EQM: Godrej’s FMCG business has come a long way since the Godrej Soaps demerger. How would you describe the journey so far?

Mr. Godrej : We decided to demerge Godrej Soaps with the intention of creating shareholder value. We effected the demerger from April 1, 2001. Godrej Consumer Products has just published the annual report of its first year of operations. The company has done very well. In line with our expectations, the market has also evaluated this positively. The market cap of Godrej Consumer Products has more or less doubled since its formation. The first quarter results of the company were also excellent where our PAT growth was 39% and EVA growth was around 49%. We feel that we have a very strong year ahead of us.

EQM: What is your vision for Godrej Consumer Products 5 years down the line? What will be the management’s strategy for growth going forward?

Mr. Godrej : Our vision for Godrej Consumer Products is to focus on the personal care and household care segments. We do not want to stray out of these two segments. We want to achieve a considerable topline growth rate and an even faster bottomline growth. We expect to achieve topline growth both through organic growth in the categories we operate in and through entry in new categories. We will also look at acquisitions, provided they are financially feasible. We will not go for acquisitions at any and every price. Only when the acquisitions are financially viable will we look at them. But clearly we are focused on a high growth rate.

EQM: Any targets…

Mr. Godrej : It is difficult to say, but we expect to grow 10% higher than the FMCG sector.

EQM: In your view, what will spur growth for Godrej Consumer, expanding consumer base (volumes) or higher per capita consumption of existing customers?

Mr. Godrej : Growth strategies are very different for different categories. In some categories we are looking at expanding the size. For example, in our hair colour business, our focus is on expanding the size of the category through both higher consumption (more up market consumption) and more users. In soaps, we feel that the market is pretty saturated in terms of users. Almost everybody uses a soap. Since we are not the market leaders in this segment, we don’t think we will be able to drive category direction. So there our objective will be to bring in innovative products and increase our market share. As I mentioned, we will also try to achieve growth through newer products (categories in which we were not present earlier). We have introduced a fairness cream and an aerosol deodorant recently.

EQM: The Godrej Group and its associates already own over 72% stake in Godrej Consumer. With subsequent buybacks what message are you sending to retail investors? If not, what is the rationale of the buybacks?

Mr. Godrej : Buybacks are resorted to only because we have surplus cash. It makes no sense to keep surplus cash as investments in a low interest rate environment. It is much better to pass it back to the shareholders. As far as dividends are concerned, we are already paying the maximum allowable as per the Companies Act. Otherwise we would have preferred to pay more dividends. Therefore, we had to resort to buybacks. But at the same time, we will look at placing some of the promoter’s shares with FIIs and mutual funds. We don’t expect the promoter shareholding to rise in the long run despite the buyback.

EQM: So the retail investor is not looking at a de-listing by the company?

Mr. Godrej : No, not at all. We are not looking at de-listing Godrej Consumer Products.

EQM: With globalization, the market has become extremely competitive. Do Indian companies have what it takes to reach the top?

Mr. Godrej : I think the Indian companies are doing extremely well in FMCG and some other sectors. For example, in pharmaceuticals, Indian companies are performing better than MNC companies. If you look at the last two years (there have been a few articles also in the press recently), Indian FMCG companies have fared better than their MNC counterparts. Atleast I can speak for Godrej Consumer Products, our growth rate – both topline and bottomline – has been one of the highest in the FMCG sector in India. So I see no problems at all. It is not a question of MNC or Indian. It is a question of quality of management.

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