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Bajaj Corp gross margins to expand this year: Sumit Malhotra

Experiments that we tried over the last three years are now yielding results, says Bajaj Corp MD.

ET Now|
Apr 26, 2019, 01.14 PM IST
Sumit Malhotra-Bajaj Consumer-1200
The value growth of the hair oil industry has been over 17% on the back of 8.7% volume growth, said Sumit Malhotra, MD, Bajaj Corp, in an interview with ETNOW.

Edited excerpts:

This is the second quarter showing double digit growth. What has been aiding your overall volumes?

I have been speaking to all of you that we are primarily a hair oil company and therefore the growth that you see over the last two quarters is a direct reflection of the hair oil industry growth coming back. Actually, in the last full year financial year, the value growth of the hair oil industry has been over 17% on the back of a 8.7% volume growth. These number are very different from what we have seen over the last three years, where overall hair oil growth itself was muted and our good performance over the last two quarters has largely been on the back of this. Also, important are the initiatives that we have launched in terms of communication as well as distribution across India and in the international business.

You have taken a 4% price hike in order to mitigate the increase in raw material and packaging cost. Is that going to support your margins? What has been the overall margin trajectory and the outlook here?

The margin over the last full year and even before that has been quite steady. We still have around 67% gross margin which is very healthy. Crude prices actually went up and though we had stocked enough to take us into February of last year, we saw that the crude prices were not going down and therefore LLP prices continued to rise. In order to accommodate that we had taken a price increase late March. so you will probably see the effect in April-May. There will be marginal increase in the gross margins but no massive increase because we are now buying new price stocks at a higher range than what we bought last year same period.

Is the peak expansion that FMCG companies have seen because of GST rollout behind us now? Margins for across-the-board industry companies have improved. Have they hit a glass ceiling?

Yes, gross margin is one, because of whatever the macroeconomic scenarios are due to taxation and competition. If there is a weak environment then there is down-trading and therefore margins also fall.

The other thing I believe is this year, you will see expansion in gross margins not only because everybody has got aligned to the GST part of it, but inflation is under control and therefore a little bit of premiumisation will also happen which will help the FMCG industry gain margins.

Minus hair oil, what is happening to your other businesses, especially the cream business and skin care business?

The skin-care business has also done well this year. We have ended the year with a 27% growth in the No Marks business. The last quarter was even better. We have to now get into terms with how to manage that category and even though the category is growing even faster than the hair oil industry at 21% by value, we are growing faster than that and therefore gaining market share within the anti-mask category.

All in all, the experiments that we tried over the last three years are now yielding results and we have got our understanding of the category much better now by going to the consumer and also studying the competitive landscape here.

A couple of years ago, there was this ear of Patanjali. But suddenly, that entire disruptive fear from Patanjali has died away, what is happening there?

I really do not know too much about what is happening in Patanjali. I can actually look at the company from outside and what I can tell you is that it started its growth on the basis of two platforms; one was the ayurvedic or natural platform, the second one was on price and therefore each of their products had a disruptive pricing.

As they went along, somewhere along the way, they lost this whole platform of ayurvedic and it became purely a price-driven game. And like any consumer will tell you, that price has a positive and a negative side to it. The negative side is basically low priced product is also seen as an inferior quality and thanks to the massive growth that they got, they were not able to look at the quality that seriously. The original theme of natural, ayurvedic, good-for-you product got diluted over time.

How is the Almond Cool Oil going to contribute to your overall sales?

Unlike NoMarks, which is a Rs 350-crore anti-marks category, cooling oil is a much bigger category and getting a foothold there will help us move the needle a little more significantly.

This is the first time we had tried extending almond drops and we have actually launched cool under the platform of almond drops itself and what we are saying is this is a cooling oil but it has got the benefits of being light and therefore normally the harshness or the heaviness of a cooling oil has sought to be negated with this kind of oil.

It has gone out well but I think the optics are yet to take off. We have taken Jadeja as the brand ambassador and those ads are already on the air, but offtake is yet to be significant at this point of time.

What is going to be your overall trajectory in terms of revenues as well as your capex plans?

As a company, we normally do not give guidance but I can safely say that this year in terms of value and volume, we will be much better than last year because a) we are much more focussed and the initiatives we took over the last two or three years in terms of manpower, processes, automation, innovation will yield much better results this year.

In terms of capex, there is just one small amount that we will be spending for beginning our corporate office in Mumbai. That will start in the second half of this year and therefore the main load will not come in this year alone. In terms of trajectory, you can look at positive growth both in terms of market share, volume, value, growth and maintenance of profit.

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