It is important to look at growth from a two-year CAGR basis, said Vivek Gambhir, Managing Director & CEO, Godrej Consumer. Here is the full details of the comments made by the CEO.

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Q: There have been some mind-boggling volume numbers posted by everybody. Your volume growth is 14 percent compared to expectations of 10 to 12 percent. Is this to a large extent because of a low base, if you remove the base and adjusted what may be the annual growth that you can post?

A: As you clearly mentioned, it is very important to look at these numbers from a two-year CAGR basis given the low base quarter. So on a two-year CAGR basis our numbers were trending closer to an 8 percent volume growth. Our belief is that on a two-year CAGR basis the industry growth would have been around 6 percent or so. But if the current trend continues with improvement in demand particularly on the rural side of things our expectation is that demand for the industry as a whole volume demand should be somewhere between 8 to 10 percent. If you add a little bit of price led growth which would probably happen in the second half of the year this could be a year with for the industry, you could see a growth of about 10 to 12 percent. So, certainly things are improving and heading in the right direction.

Q: Just give us a little bit of perspective since you will be looking at this market for over many years. This CAGR of 6 percent for the industry and 8 percent for your company how does this compare with say a slightly longer period if you looked at probably from 2012 to 2016? What I am trying to say is there a bounce which is better, can we expect this to even do better?

A: So, if you look at the period between 2012 and 2015, during that time volume growth was around about 10 percent or so. Between 2015 and 2017 growth had dropped down to 4 to 5 percent and also during the early 2011 and 2012 there was a certain amount of higher price lead growth as well which hasn't happened in the industry. So we still haven't got back to the period from say 5 years ago. But certainly if we can get to 8 to 10 percent volume growth that would be a very positive trend for the industry.

Q: I want to talk about the household insecticide segment because there the growth rates have been phenomenal for you and we have seen some competition from start-ups, from new brands like DND etc. but despite that your growth has been what 17 percent this time tell us a little bit about what the innovation pipeline is looking like, what kind of brand investments are you making in the household insecticide segment and whether you will be able to sustain this run rate?

A: We are a market leader in insecticides with over 50 percent share in the market and a lot of the growth in this segment is driven by a constant thrust of innovations and so over the last two or three months we have launched some fairly game-changing innovations. We have launched Goodknight Power Chip, we have launched a Green Shakti Low Smoke Coil and we have launched a liquid vaporizer machine with 50 percent more power.

Over the next two or three months there are two or three more innovations planned. Our innovations will straddle all the formats at various price points. Along with the focus and distribution we feel very confident that we will be able to continue sustaining our share in this category. The big opportunity here is that the rural market is only about 35 percent penetrated and so rather than talking about share gains from existing players, the big opportunity for us is to grow the category and develop the market and that is where all of our efforts are focused on.

Q: When you were speaking to us about volume, you said you will expect 8 to 10 percent growth and plus higher EPS or higher earnings because you will have a little more by way of price increases. You are sure you can push that through? There is enough demand to be able to push price increases and where will they come, will they come in oil, soaps and insecticides?

A: We will have to just wait and see because pricing changes depend both in terms of what our cost situation is and what the competitive environment is which is why in the latter half of the year we do believe there will be some opportunity to pass on some price increases. Typically, we do this through new innovations, new variants, playing the portfolio in a much more systematic manner.

But, I think the reality is that if you look at input cost for us the two biggest input cost that we worry about are palm oil and crude oil. The palm oil situation is expected to be benign over the next few months. So, I don't expect any pricing action on the soaps front.

Crude is an indirect variable for us, but it affects a lot of other inputs such as packaging, some other inputs etc. in that basket and typically crude affects about 40 to 50 percent of our cost bar. There we are seeing about a 5 to 8 percent increase though we have certain contracts already locked in. But as those prices increase, the first focus will be on trying to get our costs down. But I think if we need to take some selective price increases down the road, we will look at them.

The focus in the near term will still be on volume growth and we still feel very comfortable that in spite of this inflation in cost, our profit growth for the year should be ahead of revenue growth and you will see margin expansion from us.

Q: Now for that big statement you made to the analyst - fiscal year 2019 will be most active in terms of new launches? Give us some colour on it or should I say hair colour on it?

A: Across the board you will see us with launches in insecticides, in personal care, in hair colour. If you look at our track record, we have been the innovation leaders in our categories and so across the board while I can't talk specifics suffice it to say that a lot of our focus will be on some very exciting game-changing new launches.

Q: Within the soaps and the hair colour segment you have been gaining market share and you have delivered double-digit volume growth. Is there lot of this coming because of aggression in terms of marketing spends, because that is what we are hearing from a lot of other market participants as well that the entire sector is now going up on marketing spends. What are your own thoughts on that?

A: If you look at our advertising spend last quarter, it was 11.7 percent of sales. So, typically our advertising spend ranges between 11 to 12 percent. We are quite comfortable with that and so our intent again is to be very competitive as far as advertising spend is concerned. So far a lot of players are investing in brand building and innovations which I think is the right way to build demand and the categories.

Q: The only a niggling worry is the international business and a little bit of a slowdown that we have seen over there. In fact this time as well your constant currency revenue grew just about 7 percent year-on-year. I think it is Indonesia that has been a pain point for you. Can you tell us what the prognosis is for the international business?

A: Indonesia is on a strong path to recovery. Even in the last quarter our growth rate was 10 percent which was far better than most other players in the industry. If the current momentum in the Indonesia continues this should be a strong recovery for Indonesia. Africa had a slightly softer quarter, primarily driven by a very bad macroeconomic situation in South Africa.

West Africa has done well for us, Kenya has been recovering well. So our expectation would be is, that the second half for Africa should be much better than the first half of this year. If the Indonesia recovery continues that should mean a good year for international as well.