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After three quarters, rural growth has come back: Sumit Malhotra, Bajaj Corp

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Talking to ET Now, Sumit Malhotra, MD, Bajaj Corp, points out that while last year there was a 14% VAT, this year they had 18% GST and lost 4.5% because of taxation.

Edited excerpts:

Your numbers seem a little muted. Let us start with the top line which despite the low base has grown 5% in the fourth quarter. What would you attribute this to?

It is not really 5% because you have to take into consideration the difference in the way the tax has been calculated last year versus this year. Last year, we had a 14% VAT, this year we have a 18% GST. We have actually lost 4.5% just because of taxation.

So, there is around 10.1% growth in turnover in this quarter which I believe is good, considering all the disruptions that have happened over the previous three or four quarters. So, that is one part of it.

The second good part is that finally after three quarters, rural growth has come back and in the fourth quarter of this year, offtakes in the rural areas is now equally to offtake in urban areas which is a big improvement over the previous few quarters. Keeping all of this in mind, there are green shoots of improved performance within the light hair oil as well as the total hair oil market share that we now track on a consistent basis.

What has been the volume growth as well as the pricing growth that you have seen in the quarter gone by?

There is no pricing growth because all the price increases have now been taken in April. In terms of volume growth, it is 5.86% and the change in the mix rather the bottles in our case, has grown faster than the smaller SKUs which is natural if the rural offtakes are under strain and therefore you have a difference of 5.86% volume growth vis-à-vis 10.1% value growth that we had reported in the fourth quarter.

Having said that, apart from almond drops and Brahmi Amla, all the products in FY18 have seen a dip in volumes compared to FY17. What has been the reason behind it and what are you doing to correct that?

We have actually been focussing on one brand at a time. We used to focus on the main brand which is Bajaj Almond Drops. We actually repositioned and relaunched Brahmi Amla in November of 2017 and that is seen as good growth. Within the Nomarks range, we have focussed on the cream which has grown by around 30% odd last year and around 42% in the fourth quarter.

Slowly but surely, we have been increasing our bandwidth. It is all about how much you can do considering the strength that you have.

The light hair oil as well as the almond drops oil market has been seeing growth in mid single digits since the last few years do you expect a meaningful pickup here what will drive the numbers in the segment?

What will really drive these numbers is the rural growth because if you look at the population we have around 67-68% of the population in the rural areas whereas if you look at our sales or sales of the light hair oil you will find that only 40% comes from the rural areas.

There is a gap to be bridged and that has been the dampener over the last seven-eight quarters in which rural growths have really not been as robust as they were over previous years and the commentary I made in answer to your first question that now after many quarters you are seeing rural growth pick up .

Though it is still not very high, it is not a double digit growth but I am sure that the signs are strong enough to see that in the coming quarters you will see rural growth come back to the levels they were may be three years ago.

Crude prices have seen a very drastic runup. How does that impact your costs and pricing?

Costs were affected but this is one part of our control that is very robust. It is a fairly simple business in the sense that like liquid paraffin which is directly linked to crude is a major part of our cost and if you can control that you can actually control your margins on a much more tighter basis.

We normally stock up and buy on dips and therefore we still have not really got a reduction in gross margins. If you see our numbers, you will see that despite crude going up and LLP being directly linked to crude, our margins have not yet crashed there. That is the control we have over liquid paraffin but looking at the consistent increase in crude prices, we had to take the price increase that we did in April. Hopefully, we should be able to manage margins in the coming year.

Can you manage margins even in an inflationary scenario?

There are two parts — one is competition. For FMCGs, more competition is better because more competition actually means more communication, more awareness, tighter control over cost and higher amounts to be spend on communication all of which is good for any industry.

In terms of managing the cost, the increase in commodity prices will not only affect us and therefore if there is a disruptive increase in commodity prices. everybody else would need to take a price hike.

The way we normally do it is we try to accommodate for a higher price increase on raw and packaging materials and the basic logic behind that is not to take too frequent price increase.

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