We are seeing an uptake in our rural growth: Vivek Gambhir, GCPL

Vivek Gambhir, Managing Director, Godrej Consumer Products Ltd (GCPL), in an interview with Swati Khandelwal, Zee Business, talks about African business, strategy to meet the challenges and rural growth among others. Edited Excerpts: 

Q: Indian business has performed and contributed to the growth despite the growth of revenue in African business, which is not as good. What are the situations in Africa in terms of growth in revenue?
A: We are pleased with our performance in Indian business, which has been delivering consistently with double-digit growth and sales as well as margin expansion. The margin expansion is led by the significant investments which are being made in the advertisement. In international business, Indonesia is performing very well with both top-line growths along with margin expansion. Africa has been a challenge over the last quarter on the margins front due to certain reasons and they include 

1. Take a look on our business across both East and West Africa the performance has been quite good. Challenge has been in South Africa, which is going through a significant macroeconomic turn moil and the macroeconomic situation is largely driven by significant underperformance in South African business. 

2. We have seen a lag between the input cost that is going up because of the currency devaluation and some of the price hikes that we have been able to take.

3. We have been investing very significantly in advertisement and have launched a number of different brands in hair extension and wet hair portfolio across various parts of Africa. This upfront investment in marketing has also dampened the margins in the previous quarter also. Having said that though, we are very confident that you will see a much stronger performance in both top line and bottom line from our Africa business. 

If our Indonesian and Indian business performance sustains in the second half of the year than overall GCPA in the second half of the year should be a stronger second half on both top line and bottom line.   

Q: Also tell us about the Rs 260 crore exceptional items in Quito?
A: The exceptional items have largely been driven by some steps that were taken in correcting our inventory across Africa. There is a certain amount of write-up from the receivables front in Argentina as well. But the being bulk is driven by exceptional in terms of inventory write- up in African business. The policy that we have adopted is quite conservative but we believe that this was the right policy to adapt to strong performance in 2qauters ahead. 

Q: How does the rural growth pan out in H1FY19 as far as the rural consumption story goes? Did the rising crude prices and depreciating rupees have any impact on your numbers? 
A: Across the board, we are seeing an uptake in our rural growth, which has been doing nearly 2X of urban growth. So, as we see the benefits of MSPs increases, the government's stimulus that they are putting on the ground and various government social programs have helped us to see healthy momentum in our rural growth across the board and stronger performance in rural India. 

Q: Advertisement expenses have gone up by 20 per cent. Is this related to new product launches or you have plans to increase it further?
A: Ad expenses have gone up due to new launches in India. We had a few exciting launches like a comprehensive male grooming range, first powered liquid hand wash in India and we intend to fully fund them with adequate advertisement support. Having said, you can have a look at India PNL sales which has grown by 10 per cent and gross margin also expanded by 100 base points. Despite the expansion of 25 per cent in ANP, we were able to deliver a very healthy margin expansion. Thus we will continue to back our new launches with adequate marketing support but we feel very confident that there is enough room in PNL to continue to deliver healthy and profitable growth. 

Q- What do you have to say about the global demand outlook and which markets do you see could outperform in the next 2-3 years? 
A: We are able to see a good amount of recovery in India and Indonesia and across Africa and the US. Demand continues to be steady in East Africa, West Africa and the US. The challenge seems to be in Argentina and South Africa. So, we will have to wait and see that what happens over there. 

Q: Do you have plans to grow organically and inorganically; if yes let us know about the segments?
A:  For us, over the next 1 to 2 years the focus of our growth will be on driving volume growth in organic business. We believe that there is tremendous headroom for growth in the areas in which we have participated in terms of both penetration and consumption and along with driving growth through stronger distribution. We have certain exciting products in the pipeline across all categories. So, a combination of a stronger focus on distribution launches and much tighter execution, we believe that we will continue to outperform in the industry. The focus will be on organic growth over the next 1 & 2 years. 
 
Q: H1FY19 has been very volatile. What is your outlook on H2FY19?
A: For FY19 our efforts will be to deliver both top and bottom line ahead of what the performance was in FY18 and in the second half of FY19, our efforts will be on to do better than H1.