GCPL's margin to grow faster than sales in FY15: Vivek Gambhir

Interview with Managing Director, Godrej Consumer Products

Godrej Consumer Products Ltd (GCPL) posted better-than-expected margins and net profit for the quarter ending March, though it fell short on top line growth. However, Managing Director Vivek Gambhir tells Sheetal Agarwal premiumisation and cost savings will drive further margin gains. Edited excerpts:

What’s the growth outlook in FY15?

Revival of economic growth will be the key and the election outcome will also be significant to some extent. Historically, our home insecticides and personal products (domestic) business has grown 1.6-1.7 times in overall category but it grew by three times in FY14. We have gained market share significantly and have a great platform to accelerate growth from here.

GCPL’s Ebitda (earnings before income tax, deductions and amortisation) margins have been the highest in the past eight-10 quarters. Is that sustainable?

Margin improvement happening in India business was primarily fuelled by better cost management. Higher premiumisation via products such as Godrej Expert Creme, Fast Card and Premium Aer products will further aid margins. Thus, better advertising and promotion leverage, cost savings and premiumisation should be the key margin drivers for us. We believe Ebitda margin expansion will be ahead of sales growth in FY15.

Soaps category has slowed down in FY14. How do you expect this segment to grow in FY15 and what is your pricing strategy in this segment?

For FY14, our soaps business has grown better than the category in the backdrop of a slowing economy. Lot of future demand will depend on how the economy performs next year. However, we believe the low base effect of FY14 should kick in FY15 and overall numbers should look better this fiscal. We took 3-4% price hikes in March 2014 quarter and will make appropriate calls on calibrated price hikes to pass on higher input costs.

How will you sustain the strong momentum in home insecticides business?

There are two drivers. One is to increase rural penetration which stands at a mere 28% currently. Our paper-based repellent, "Fast Card" should enable us to achieve this. Second, we are looking to increase urban consumption through our newly launched product "Good Night Express". Thus, higher penetration in rural and tapping the consumption opportunity in urban areas should enable us to post similar growth rates in this segment.

While most of your International businesses have done well this quarter, UK has been under pressure both on sales and margins? Reasons for the same and how do you expect it to do in FY15?

This quarter saw a temporary blip as we acquired Soft & Gentle in March 2013 quarter. Lot of sales was booked by its previous owner in that quarter. January month was more wet than usual, and also impacted demand.

Thus, this quarter growth appears slow given the high base. On a full year basis, UK organic business has growth at 17% in constant currency terms. In FY15, we should be looking at double-digit sales growth in constant currency terms and expect margins to be in high single digits.

Give us the timelines of stake increase in Darling.

We expect to add a few more countries this year and expect to have full control of Darling business over next 2-3 years.

Do you plan to enter any new product categories?

Our focus is to foray into adjacent sub-categories within our existing categories. For eg, from soaps we entered into shower gel, we extended our portfolio from hair colours to hair extensions. So our focus is to expand within our existing categories.