Godrej Consumer sees gradual recovery in FMCG sector over coming quarters

This story first appeared in The Free Press Journal on Thursday, November 7, 2019.

The fast moving consumer goods (FMCG) industry in India, according to Godrej Consumer Products, is hopeful of a gradual recovery over the coming quarters.

The Godrej group company has reported 7% volume growth in India business for the July to September quarter of fiscal 2019-20.

Vivek Gambhir, managing director and chief executive officer, Godrej Consumer Products Ltd (GCPL), said, the 7% volume growth was its highest in the last five quarters and was broad based across categories. “We have seen a sequential pick up in volume every quarter, for the last few quarters.

Picture Courtesy: www.godrejcp.com

The growth was led by new product launches, strong marketing campaigns and consumer offers. Our expectation is to ride on the gradual recovery that we see in India and improve our volume growth momentum,” he said during an earnings call on Wednesday.

To achieve this, the company will be intensifying its thrust on innovation and new product launches. In the pipeline are a slew of disruptive offerings including the Good Night Gold Flash, which it claims to be its biggest innovation in the category over the last decade. Another offering is HIT rat glue pad that’s available only in a select few markets at present.

GCPL has also entered the anti-mosquito racquet space under its HIT brand. This product category has been largely dominated by Chinese products and private labels thus far. The company is looking to disrupt this segment with a branded offering via the e-commerce distribution channel.

At Rs 399 a piece, the pricing of this product however is significantly higher compared to what’s already available in the market at present. Abneesh Roy, executive vice president - institutional equities (research), Edelweiss Securities noted that since the product is only available through e-commerce the company may need to look at physical retail stores going forward.

In fact, GCPL is planning to launch the anti mosquito racquet in modern trade and based on the market response will extend it to premium general trade and other outlets in the next phase of its distribution strategy.

“We are quite happy with the initial success and the plan is to scale up across other channels as well. As for pricing is concerned, this is a product with a much longer warranty and is much superior versus some of the unbranded and private labels that you’d see (in the market).

Our hope is that with the kind of trust and equity HIT commands in the market, we should be able to sustain the premium pricing (Rs 399) of the product,” said Gambhir.

Among other new products to be launched will be in the hair colour space including the relaunch of Expert Creme hair colour and Godrej Anoop Ayurvedic anti hairfall oil through the e-commerce channel. This apart, a bunch of new offerings are in experimental stage and will either be launched on e-commerce or sold through modern trade channels.

(The writer is an independent business journalist and can be reached at ashishktiwari.1976@gmail.com)

Titan cuts H2 FY’20 growth guidance to 11-13% from over 20% earlier

A version of this story first appeared in The Free Press Journal on Wednesday, November 6, 2019.

Stressed consumer sentiments coupled with growing tendency for conserving cash in hand is likely to impact growth targets for consumer companies in the remaining quarters of the current fiscal. And as demand environment continues to be sluggish, consumer companies could be looking to revise their growth guidance for the second half (H2) of fiscal 2019-20 (FY’20).

Taking a lead in this direction is Tata Group’s jewellery, watches, eyewear and fashion accessories business vertical, Titan Company Ltd (TCL). The company management said in an earnings call on Tuesday evening that it has revised jewellery business growth guidance for the period between October 2019 to March 2020. Taking a cautious approach Titan Co. management had in August 2019, said that it was targeting over 20% revenue growth keeping the wedding and festive season in mind.

C K Venkataraman, managing director, Titan, said, “The guidance has been revised to between 11% and 13% now from the earlier over 20% growth levels.” The downward revision has been done after taking into account that overall market situation and consumer buying behaviour, said the top company executive.

Analysts tracking Titan are of the view that the premise of over 20% growth talked about earlier was based on company’s execution of business and not necessarily relying on overall macro market conditions. However, the change in the guidance now is an indication of concerns in this industry as a result of which Titan management has made a significant correction in its growth numbers going forward.

Abneesh Roy, executive vice president - institutional equities (research), Edelweiss Securities, said that the brokerage has been pointing that achieving 20% guidance in H2FY20 is very difficult in jewellery business given weak sentiments, high base of 36% in Q3FY20 and 21% in Q4FY20. “For FY21, the company is yet to change guidance from current 20%. By next quarter, Titan said they will have more clarity,” said Roy.

 
While Edelweiss expects Titan to correct 5-6% in near term, from longer term perspective, the brokerage maintains a BUY on dips given huge retail expansion, struggling competitors and increasing formalisation of jewellery sector.

Elucidating the reasons that led to revising the guidance, Venkataraman said, the company had set out a growth table for five years based on positive sentiments in the business environment. Growth may have been sluggish, in single-digits or flat during the fiscals 2018 and 2019 owing to certain migration that started happening as a result of a lot of structural changes, demonetisation, Nirav Modi scam and so on.

”The trust factor started kicking in, in favour of Tanishq and we were able to deliver a 20% plus growth rate with a certain set of initiatives and certain level of excellence in our execution. Our internal research with consumers done earlier in January and February 2019, indicated positive sentiments. However, what’s appearing now after six - seven months, is that the sentiment is actually worse than what we had measured then.

“As a result, the overall industry has witnessed 70% decline in imports, every single jeweller that we are aware of, is talking about a decline, vendors are talking about big drop in supplies. Regional jewellers are talking about a 12% and 22% decline in business during the festive period as opposed to 10% positive growth that has been achieved by Tanishq. So, obviously the strategies and standards of excellence in our execution are happening in a circumstance that’s less in our favour than a year ago,” he said.

Taking into account the market conditions, the company had to go back to the drawing board, expand the number of weapons that required (to deal the market conditions) or create fresh ones. That, as per Venkataraman, will take a little more than a few months and hence the change in guidance for October 2019 to March 2020 period.

“It is our intent to keep gunning for the over 20% growth number for fiscal 2021. For the moment though, it can only be about tweaking of the arsenal that we already have. And we are going by the more recent growth performance over the last three to four months,” he said.

While companies like Hindustan Unilever Ltd (HUL) operating in the fast moving consumer goods (FMCG) sector are optimistic about overall business, the company management had earlier said that near-term demand outlook, especially in the rural markets, remains challenging.

Among India's leading Ayurvedic and natural health care companies, Dabur said that it is working on achieving its annual growth target of mid to high single digits for the full year.

On the possibilities of revising the guidance for the second half of current fiscal, Mohit Malhotra, chief executive officer, Dabur Ltd, said, there was no need to do it. “We will work to achieve the targeted growth rates for the fiscal 2020,” he said in the earnings call on Tuesday.

(The writer is an independent business journalist and can be reached at ashishktiwari.1976@gmail.com)