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Saugata Gupta, managing director and chief executive officer of Marico, the consumer goods company, talks of the outlook for FY16, in an interview with Sheetal Agarwal. Edited excerpts:
In the December quarter, you’d talked of a pricing correction in Saffola (its edible oil brand). That has not happened and volume growth remains under pressure. Do you think your margin focus is hitting volumes?
No. We decided, rather than taking a pricing call, on a few initiatives in Saffola. We have just launched a 500-ml one to expand the base. We are also doing a few other things. The idea is to try and protect our margins, while continuing to invest behind the brand, and do certain initiatives as opposed to only a pricing call. We are extremely confident about an eight to 10 per cent volume growth in Saffola in the June quarter itself.
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The reason we did this in our system is because we are moving to a state-of-art auto replenishment sales model. Meaning that based on the secondaries, there will be auto replenishment of the primaries of distributors. Distributors can then operate with much lower stock levels. It reduces inventory in the whole system because it integrates everything from secondary sales to forecasting to demand planning to production planning and material requirement planning. It leads us to better controls, much more forecasting accuracy and lower inventory.
The distributor will get incremental return on investment due to the lower inventory, which he can deploy in the market. And, our sales force will get to work with an increased bandwidth and not spend time discussing orders and primary sales with the distributors. That time can be used for demand generation. I think it is a win-win for everyone. We will stabilise in this new system over the next two quarters.
Throw some light on growth trends in the urban and rural markets, as well as your outlook on volume growth.
We believe we will achieve eight to 10 per cent volume growth at the group level in FY16. There are two things. One, we believe urban consumption is expected to move up, though it will be a gradual and not a steep recovery. We are very confident that there will be increased growth next year (FY16) in gross domestic product and this will translate into an uptick in urban consumption. On rural consumption, there are some hiccups in terms of unseasonal rain but I believe a 93 per cent monsoon is not going to have a big impact. It’s too early to take a call on this but we are not unduly worried. Even in this quarter, rural growth has been quite good. We will wait and watch here but are much more confident about urban consumption picking up gradually over the next three to four quarters. I believe urban consumption will drive growth in FY16.
Outlook on margins in FY16?
We expect the operating margin to be 15-20 per cent. We have moved up from 12-14 per cent in the past two years. We continue to gain market share in more than 80 per cent of our portfolio and that is something we would like to maintain. Also, we are driving premiumisation in our hair nourishment portfolio, which will aid margins. You can expect at least three to five more prototypes over the next 12 months and with that, we will be able to scale up quite a bit.
How much growth do you expect in your value-added hair oils portfolio?
We are extremely confident of delivering 15-20 per cent growth in the segment. Our entire focus is on product participation strategy and giving specificity of benefits. All other players in this segment operate in only one space and one ingredient. We operate not on an ingredient base but on a consumer needs base. We have shifted gears in the past year to concentrate on not only gaining volume share but also value share. This year, (FY15) also, we have gained a 200 basis points value share. Our aspiration is to move our market share in value terms to 30 per cent and our volume share to 40 per cent over the next three years. You will see a significant amount of innovation in this category in the next couple of years.
(Your brand of) Oats is doing well but is number 2 in market share.
We are number 2 in overall oats. In the savoury oats segment, we are number 1, with a market share of 67 per cent. We are not focused in the commodity part, the plain oats. We want to be in the value-added space, which is much more high-margin and which, we believe, will be the growth driver. So, we are picking up market share every quarter. We did Rs 80-90 crore this year (FY15) and hope to move it to Rs 125-plus crore in FY16. I’m then sure we can see a Rs 200-plus crore food portfolio in the next two or three years.
Do you plan to improve dividend payout
We want to focus on improving the RoCE (return on capital employed) and dividend payout ratios. We have done a 30 per cent dividend payout if you exclude the one-time that we paid and I am sure of getting into the upper 30s next year. We are tracking improvement in the return ratios and do not have targets there but will work to improve these continuously.
