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We believe in building brands when growth is down: Sumit Malhotra, Bajaj Consumer

ET Now|
Jul 16, 2019, 12.49 PM IST
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Sumit Malhotra-Bajaj Consumer-1200

Highlights

  • Raw and packing material prices are fairly benign.
  • Growth rates in hair oil industry have halved.
  • I do not see any strain on margins.
The third quarter of this financial year or in the last quarter of this calendar year, we expect some kind of an uptick, says Sumit Malhotra, MD, Bajaj Consumer Care. Excerpts from an interview with ETNOW.

Everybody is talking about a visible slowdown. Some can feel it, some can smell it and some can smell and feel it both. Do you think the bad will get worse before it gets better?
I would not be a pessimist but it is a bad quarter for the industry itself. And the signs at this point of time do not indicate any change in this kind of trajectory. Even though I would avoid being a pessimist, I would say that the outlook is cautious at this point of time.

Just talk about where the demand scenario was? In January and February, every FMCG company was extremely gung ho. Margins were strong. Growth was double digit. What has changed between January and now,? Demand cannot contract because of lack of liquidity or because what is happening to NBFCs.
I do not think for our kind of product, NBFCs have a major role to play. In my opinion, the biggest difference has been that the upward trajectory of rural consumption has reversed sometime in late April and May and that is what you will see in the results of ours and also our competitors in the FMCG industry. To give you some facts, in the fourth quarter, the overall hair oil industry grew by 8.9% and this quarter it has grown by just 4.4%. So, growth rates have halved and that is not a very good sign.

If you split that further between urban and rural, urban was growing at 8 odd per cent. It has gone down to 4.5% and rural has dropped from around 11% to 4.8%. So the biggest drop is in the rural areas and consumption despite MSPs going up and all the hoo-ha about the elections has not really converted into any kind of money coming into the hands of the rural population.

What is the outlook on your overall market share? How do you plan to preserve it at a time when you are looking at managing the overall pricing scenario? Are you looking at some more revisions in your pricing?
Not really because the only good part in this quarter is actually the raw and packing material prices are fairly benign and therefore there is really no strain on the gross margins. Also for us, there is really no reduction in the market share. But we have been pushing for an increase in market shares and especially since we are the single biggest hair oil makers in the country today. We would like to take this difference between us and the number two even further and that is something that requires investment both in distribution and more so in communication. If you look at our results this quarter, we have upped our ASP by more than 2 percentage points versus sales.

Going forward, the Bajaj Almond Drops market share is seeing an improvement. Almond Cooling Oil also had a pan India launch this year. How has the response been? Which are the growth segments going forward and the ones where you see comfortable margin expansion?
In terms of market share, Almond Drop continues to do well and we are working on increasing our reach and spends in a few states where we are trying out an experiment in terms of how we can increase the gap between the number one and number two players or become the number one in all the states that we are present in.

In terms of Cooling Oil, we have notched up a 1.3% market share within the industry which is a good launch and if you compare with the other five or six launches in hair oil that happened in the first quarter, this would be the fastest uptick that you can see there.

In terms of margin, initially there is not too much of strain and as we have been talking in the past also, we will focus on maintaining gross margins and when the raw material prices are down, we would stock. We have up-stocked till October for our main raw material which is light liquid paraffin. I do not see any strain on the margins and it is very unlikely that the MRPs of our main brand which is Bajaj Almond Drops will go up in the near future.

To deal with such a marked slowdown which was not like a planned one, are you looking at going slow in terms of introducing new categories and delaying your capex? Are you looking at cutting your advertising?
Those are doomsday actions and I do not think we are anyway near doomsday. In fact, Bajaj would like to do the reverse because we strongly believe that when growth is down that is when you build brands and therefore you will see very high spends on ASP in the coming quarters. Production cut does not really work because we are still growing and therefore if at all, production will have to go up to meet that kind of a demand.

I do not think it is doomsday as of now and the picture that you just painted is something you do when you are really down and out. I do not think this industry or we are down and out. It is a blip which might last another quarter or two and we are not taking sort of retrogative actions on this at all.

You are not pessimistic but the situation is not great. Do you think things will improve logically around festival season or do you think this year we should not be in for a meaningful recovery?
As such we are not pessimistic, but we are cautious and by cautious I mean that we will have to wait and watch. I also agree with you that things do turn during the agriculture reaping season or sometime in October-November, which happens to be the Diwali time. So harvesting will happen at that time and probably with the increase in MSP and the kind of requirements, demands are there for staples.

You could see some more cash coming into the rural economy and therefore the rural consumption could go up. I would wager to say that the third quarter of this financial year or in the last quarter of this calendar year, you will see some kind of an uptick.

Also Read

Bajaj Corp gross margins to expand this year: Sumit Malhotra

There is no pressure on margins, Bajaj Consumer nearing 10% volume growth: Sumit Malhotra

We are looking at acquisition: Sumit Malhotra, Bajaj Corp

After three quarters, rural growth has come back: Sumit Malhotra, Bajaj Corp

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