After reporting a better-than-expected 59% increase in fourth-quarter net income, Vivek Gambhir, Managing Director and Chief Executive Officer of Godrej Consumer Products, said company’s growth was impacted by some of the modern retail partners reducing inventory during the quarter.

Speaking on new launches, he said, "It is going to be across the board; in household insecticides, in personal wash and in hair colour. Over the last month, we already had two launches in insecticide."

Watch: Expect double-digit volume growth in FY19, says Godrej Consumer

Edited Excerpts:

I want to start with the Indonesia business because that is still a bit of a concern with your shareholders and analysts as well because trends have kind of reversed – that improvement that we were hoping that hasn’t continued in the fourth quarter. What is the outlook you can share?

On the Indonesia business, the macro environment does remain challenging. However, we are very hopeful that the worst is over and we will see a much better year this year. What ended up happening was that the growth was impacted by some of the modern retail partners reducing inventory during the quarter.

The sellout rates have been trending in a positive direction and also what is encouraging is that earlier on we had lost some share in insecticides. We regained all that share back and a market share is over 50% now. Thanks to some of the innovations that we had launched.

We also initiated a very aggressive go to market transformation and the great thing is that we have sustained our robust margin expansion. In spite of some slowdown in sales, our Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin increased by 370 bps. This is in spite of increasing our advertising and promotional (A&P) spends by 160 bps. And so clearly, while the performance was not what we were expecting. We are hopeful that you will start seeing a better performance from that business starting this quarter itself.

When you say that you expect to see strong turnaround in ground rates in 2019, do you have any numbers in mind?

We hope to achieve double digit volume growth and if we achieve that that will be a good step in the right direction. It’s a little bit uncertain right now what ends up happening as far as price lead growth is concerned, but in India we are hoping for double digit volume growth. We are hoping for Indonesia to get back to double digit growth as well. We are hoping for Africa to get to growth in the high teens. So across the board, we have used the turbulence of the last year to step up the momentum on the pipeline for new products and so this year should be the most active as far as new product launches are concerned.

Double digit growth – will this come at a cost of margins or pricing or increased ad expense?

If we look at our marketing spend, even last year, our marketing spend continue to increase at a healthy rate. Our marketing spends have been competitive but at the same time, we have delivered healthy margin. So, we feel very comfortable that we can sustain margins or try and grow margins ahead of sales growth. It may not happen in every single quarter but there is enough room in the profit and loss to have a competitive level of advertising spend and yet deliver strong profit growth.

A few follow-up questions; first on volumes. You are saying India volumes in FY19, you are hoping to do double digits. Could you give us a closer range? Are we talking 10-12%, are we talking mid-teens or high-teens. In Africa you are looking to go high-teens.

For India, volume growth for last year was about 8%. We will try and aspire towards getting volume growth in the range of 10-12%.

On margins you are saying that you could look at perhaps even improving the margin profile for this year. Is there a target band that you have in mind and would that continue irrespective of input cost inflation?

At this stage, we wouldn’t want to give a specific guidance on the range of margin. Our efforts will be to drive sales growth – that is the single most important priority and given the kind of agenda we have with our new products and the investment we are making in improving our distribution we do believe that the focus on topline growth should be the number one priority.

Having said that, we will try and ensure that our profits grow inline or ahead of sales growth. In terms of commodity price increases, for the next three-five months, we have reasonable covers in place and so margin should not be an issue for the first half of the year.

For the second half of the year, if cost go up that might present opportunities to take some price increases – that’s not the plan right now. The biggest focus will be on driving volume growth but for the year, we feel very comfortable that we can show much better topline growth along with improved profit growth as well.

About new launches, any specific areas where you are targeting these new launches for the year?

It is going to be across the board; in household insecticides, in personal wash and in hair colour. Over the last month, we already had two launches in insecticide.

We launched a very innovative Good Knight power chip – that is intended to upgrade coil users with 2/3rd the price of coils which is much more affordable, much more efficacious product, easy to use and with the kind of investments that the government is making in rural electrification, we believe this is going to be a breakthrough product.

We have also launched a liquid machine with 50% more efficacy and beyond these every quarter, we will have at least two more launches that are going to be planned for the remainder of this year – that’s in India. A similar agenda is also in place in the other geographies in our operations.

Given what you have said on both of these segments because this is where there has been a bit of a disappointment in Q4, household insecticides and also hair colour. What is the normalized run rate that we can expect in the coming quarters?

I think in hair colour, it is important to look at the numbers over a couple of quarters because in quarter three, once the Goods and Services Tax (GST) rates came down, we saw 33% increase in hair colour sales largely driven by upstocking in the channel. So if you take a look at hair colour over two quarter period, the growth was about 18% which is a very healthy growth rate.

Insecticides has been a disappointment. Some of it has been driven by seasonal challenges but as market leaders, our job is to grow the category. Given the launches that we have now at this time versus some of the other products, we launched last year like personal repellents, I do believe that we have all the right products that we can now get our insecticides business back to low-teens if not mid-teens growth this year.