ET Now: What is it that you’re making of the ocean change that we’ve got seen from first wave of pandemic to second and now that the second wave has subsided, are you seeing a giant uptick in demand or is it nonetheless regular and calibrated?
Sunil Kataria: Things are panning out fairly fluidly so conditions are fluid. When first wave hit India, I feel there was a sense of shock and shock as a result of it got here in very all of the sudden, in a matter of few hours the lockdown came across us. The problem was actually about getting provide chains going first and clearly you realize the frontline additionally was type of closed but the massive problem at the moment was that everyone was caught up bit by supply chain disruptions. While wave two has been fairly stringent, particularly in the month of May, this time the issues have been much higher deliberate at each the federal government’s ranges in addition to the corporate’s preparedness ranges. So, should you see this time a) the availability chains have been by and huge operating easily throughout most sectors and particularly FMCG –I can discuss of an our personal firm. The second distinction which I see is that client feelings have been fairly totally different in the 2 waves and that’s the place could also be I’ll discuss just a little about what it may pan out to.
Last time, it was an enormous quantity of tension as a result of we didn’t know what COVID is and the way it’ll hit, it was a worry and lot of tension which I feel the wave two translated into worry as a result of we had truly come out of wave one fairly strongly and fairly efficiently as a nation and this took all of us unexpectedly and this got here nearer residence and hit lot of much extra variety of people– so emotion grew to become just a little little bit of worry and that clearly is just not very robust for the arrogance of customers. So, I feel these are the 2 huge adjustments which we see and I feel third change which has positively occurred is final time it has fully prime finish of the metro, prime tier cities of metro. This time nonetheless, it’s by and huge all tiers of the cities and even rural areas have gotten touched.
While there was a really robust recovery in the second half of final yr nearly a V-shaped recovery had began occurring in particularly necessities and staples and the FMCG. The month of May is a disruption but the excellent news is and that’s one thing which is fairly stunning that the recovery which has occurred in June is much extra stronger than that all of us have been anticipating particularly provided that the agricultural had received impacted. So, I feel we’re seeing a really robust June recovery. By and huge in FMCG, the demand might not have gotten disrupted too much and the demand finish will maintain topic to some elements and people elements in my thoughts are a) a very good monsoon which has began off fairly properly as a result of that holds a key to quite a lot of rural demand. b)Pace of vaccination which is absolutely galloped in the final three weeks is a really optimistic signal, the third is the stimulus which the federal government had put in the funds, if it will get applied very properly, these elements maintain the important thing.
ET Now: Given that 35% of your total revenues do come in from the agricultural finish of India, the place is it that you’re seeing a much bigger recovery -urban or rural?
So, I’ll inform you what I imply first of all– the final yr was all about enormous rural development as a result of we had seen metros and the bigger cities received impacted with the lockdown fairly badly, so rural for us grew at two instances city final yr. Now, May clearly has impacted rural but I can inform you in June, I’m seeing a reasonably first rate rural recovery. While there’s definitive impression on rural, June is simply too early to name it out as a result of this may very well be just a little little bit of a pipeline fillings impact which may very well be occurring, but I nonetheless sense that there might not have been a significant structural problem with rural due to a 30 to 40 day type of a long run this time and my early evaluation is that the agricultural demand uptick that we had seen in the second half of the final yr stays intact and the monsoon clearly trying good, harvesting is trying good and I consider that the type of stimulus that the governments had put in the funds particularly in rural areas will solely help the momentum additional.
ET Now: Like you mentioned that 90-95% of provide chain was working, can I safely assume that in the quick to medium time period there isn’t any drawback on provide chain or dependence on palm oil and different vital elements irrespective of what’s occurring on the COVID entrance?
I might say that the availability chains have been operating very easily, in reality I can inform you that from very clear learnings which we’ve got constructed into our total provide chain system, one of many greatest studying that we’ve got taken is that the lockdowns of the longer term could be localised, even in May the lockdowns was staggered throughout states, every state was taking its personal calls of tips on how to do lockdowns.
Learning from the final time for us is that we’re a) working at most manufacturing capacities, even when it means increase some stock so be it, but the second half is guarantee that this stock is distributed properly throughout the nation, so I feel that could be a essential piece to handle in order that if we’ve got 35 odd warehouses, make sure that shares are properly unfold out as a result of if localised lockdown occurs in one space you possibly can all the time provide it from the close by space We have taken learnings from the previous, we’ve got had very clean operating of provide chains and we don’t see any challenges going ahead.
ET Now: Is the spike in commodity costs manageable each for you and in your finish clients?
First of all there are two elements to it. First, the commodity worth inflation in this yr is a decade excessive. It is a world phenomena which has occurred and these cycles do occur whether or not it’s crude oil or whether or not it’s palm which you might be seeing this time and lots of different costs of different commodities. It is certainly a problem proper now. But having mentioned that, one should study to handle and I can inform you what we’re doing about it. We haven’t handed on clearly all the worth will increase to client as a result of for us the primary premium could be very clearly on driving prime line development and we’re a seeing an excellent momentum total in the final yr’s outcomes. I feel the momentum is holding for us on the highest line and demand. So, I feel the precedence primary that we have to carry on guaranteeing that we’ve got robust quantity led prime line development.
The key sport right here… on the similar time we clearly should deal with our margins. Now, even when gross margins are going to take some drops, it can be crucial for us to ensure by a mixture of price efficiencies, good strategic worth pack structure performs and thru fastened storage administration, we’re in a position to come up and do good balancing act in your EBITDA margins. You can even play pricing between your manufacturers. You can play pricing between your SKUs and also you clearly handle your price very tightly, handle your overheads very tightly, handle your working capital very well and all this may be sure that you’ll be able to maintain on to your EBITDA margins possibly intently.
ET Now: Let us take a look at the pre-COVID FMCG situation, a really ballpark quantity was that you just add couple of share factors to the nominal GDP development and also you get the trade common. When will we return to that situation when final yr’s adjustment in a way will get normalised?
There is one distinction which has performed out in 18 months from a traditional FMCG thumb rule that you’re speaking of, it has been thumb rule earlier. COVID is taking part in very in another way for various classes in FMCG. I might simply add one caveat, it is extremely troublesome to place a thumb rule to the FMCG total proper now as a result of every classes having a distinct tailwind or headwind taking part in out for us. Just to offer you an instance, clearly all necessities, hygiene, well being, immunity merchandise noticed very totally different type of bounce in the primary COVID wave. In the wave two discretionary merchandise took a beating– even in COVID final yr. While discretionary nonetheless continues to regularly get well but the tempo is slower. So I feel the query actually to ask is are class smart traits going to return to pre-COVID ranges moderately than possibly an FMCG pan quantity going again to pre-COVID.
Coming to class as traits, clearly there’s a enormous recovery which occurred in the second half of final yr throughout each necessities and even discretionary began coming again very strongly. The discretionary had not reached pre-COVID ranges but they began hovering round roughly round I might say 80% of pre-COVID ranges and my hunch is that if April, May had not occurred, we might have in discretionary additionally touched again to the pre-COVID ranges positively in this quarter. Now, with this break of the wave two, the well being, hygiene, necessities categories– they proceed to bounce again very strongly so much in order that April, May 40-day interval is only a blip is what I learn and the demand stays by and huge intact.
What might have grow to be just a little slower recovery could be I feel discretionary items and the explanation for that’s discretionary was recovering very quick but emotion modified just a little bit as individuals at the moment are extra involved and fearful of COVID submit wave two and second realisation is that this can be a yr you must study to coexist with COVID that the submit COVID might not occur this yr, you must navigate forward of COVID. Having mentioned that therefore there will probably be nonetheless localised lockdowns, there will probably be nonetheless restrictions on going out, so the discretionary class recovery will probably be sluggish.
ET Now: The mantra a lot of the corporates have adopted is that go for one or two massive mega suppliers whether or not it’s from China or whether or not it’s from every other location. Now the world is saying allow us to look outdoors China, do you see that taking place in your case as properly?
In our case, I imply, even earlier than Covid we’ve got had a reasonably distributed provide chain throughout, not solely in phrases of producing but I feel in phrases of our vendor base itself. So, clearly there are specific classes all of us find yourself sourcing just a little bit from China but we’ve got additionally received sourcing which occurs by and huge from different elements of the world like for instance we’ve got mentioned palmolein so much right now, now palm doesn’t come from China, I imply the most important suppliers of palm is Malaysia and Indonesia. So equally, for us there’s quite a lot of different provides which occur from US, some even occur from Europe, whereas China is a vital piece in our case, it’s not that we’re massively depending on China. For us it’s all the time a fairly properly balanced provider base.
ET Now: What about on the manufacturing facet, there are corporations which in relation to personal manufacturing they comply with a mannequin of contract manufacturing, it reduces price, retains you e book asset gentle. Could there be a change in considering the place corporations want to have extra possession of producing items?
So, in our case it’s a fairly properly balanced base already. We have a really distributed manufacturing and that’s one thing which I referred earlier additionally. So for instance, we’ve got our personal items unfold out throughout northeast, northern a part of the nation, we’ve got south and we’ve got west. We have all the time had a really distributed 4 totally different geographies type of a producing footprint. Plus, clearly there are specific locations that we’ve got a contractor based mostly or a 3rd occasion base. In the primary wave that one lesson many of– allow us to say individuals I do know and lots of the individuals in the trade and associates in the trade who have been referring to it—is that there have been corporations which didn’t have a really distributed, properly unfold out manufacturing pipelines they usually took that studying out of us.
In our case as I inform you we’ve got a really pan India type of a distribution, so we didn’t have that much of challenges. I feel a future play is that– you might even see a much extra unfold out all India manufacturing base occurring.
ET Now: I simply wish to perceive the massive image philosophy as a result of the final couple of years, Godrej has acquired rising market companies, that point the rising market development was very totally different as a result of they have been having fun with an enormous profit due to commodity costs. Now that commodity costs are coming again do you see at a broad stage rising market development coming again?
See, once more after we do an funding of this nature and after we do this type of acquisition, you don’t do it based mostly on just a few commodity cycles as a result of the reply to my thoughts to this query could be the broader philosophy you do such investments and acquisitions holding two issues in thoughts; first do you see a strategic match along with your total enterprise portfolio that’s one in phrases of each geography in addition to the type of classes you might be moving into which can be they actually those and the second you see an enormous potential underlying demand potential which is there in these markets. I feel neglect the cycles proper now, if these two are intact, that’s the philosophy we comply with and I don’t see proper now too much of problem on that as a result of these cycles do come and go.
Finally to make these profitable for any firm, they should just be sure you have a really robust execution and what we’ve got all the time adopted positively is that we don’t go away from the core of the buyer understanding on the native stage and our execution can be very native centric. Given that manner of approaching and given these elementary rules on which we’ve got carried out these acquisitions, I feel we should always not take a look at the cycles and we should always take a look at the long run potential and I consider that is still intact.