Godrej CEO: Focus to be on driving growth as margins are quite reasonable

Till February, the company witnessed an industry-leading 5% year-to-date volume growth. However, the spread of the virus and the eventual lockdown in many geographies of our operations resulted in zero sales in the last 10 days of March.

Godrej Consumer Products (GCPL) posted weak numbers for Q4FY20 results. GCPL’s MD & CEO Vivek Gambhir tells Shubhra Tandon the reasons for the same, overall demand outlook and his take on the government’s stimulus package. Edited excerpts:

January to mid-March was a normal quarter, with lockdown starting only in the last 10 days of March. However, GCPL’s numbers have been severely impacted. Kindly explain.

The impact of Covid-19 was quite adverse on our business and it has been a challenging quarter. Till February, we witnessed an industry-leading 5% year-to-date volume growth. However, the spread of the virus and the eventual lockdown in many geographies of our operations resulted in zero sales in the last 10 days of March. This significantly impacted our sales performance, particularly in India and Africa. In India the impact was substantial, as typically in the last couple of weeks of March, we usually see high sales as it’s the onset of the summer season for soaps and mosquito infestation in Northern India. However, it’s been comforting to see some recovery and positive growth in April and May.

Adjusted for the Covid-19 impact in the fourth quarter, GCPL’s numbers would have remained weak and analysts say that the current environment lends good opportunity for course correction. Your comments.

We believe that this year will see the resurgence of our home insecticides business. Apart from Covid, consumers will need to protect themselves from vector-borne diseases like dengue and malaria. We expect a flight to value in the near term, given potential job losses and incomes coming down. Apart from this, we are seeing big opportunities in hygiene.

What is the impact on margins and could we get an outlook on margins for FY21?
The situation is dynamic and we will have to wait and see. Raw material costs so far are under control. However, labour shortages and adhering to safety norms could increase our cost of production. So, we have tightened our belts and cut indirect spends. Our focus will be on driving growth since our margins are quite reasonable. If this means taking some short-term hits on margins, we are prepared to do that. In the long term, we remain confident about delivering sustained profitable growth.

There has been some resumption in activity now; how has it been for GCPL in terms of opening of manufacturing units and supply chain?
All our factories and CFAs are operational. We are currently operating at 60-70% production levels with about 50% labour. Most of our distributors are operational, sales are improving by the day but active servicing of the market through our sales representatives has been a challenge. Currently, the big issue is labour availability. To me, that is going to be the highest challenge. However, we are optimistic that by June-July, we will get to 80%-90% production levels. In parallel, we will have to keep learning how to operate with reduced labour, so a part of our strategy is also to try and look for third party manufacturers.

The government has stated more relaxation even in red zones. Have you seen any pick-up in demand?
Demand has been picking up across several categories, particularly in consumer staples. The challenge in the near term is more to do with availability and getting adequate supplies in the market. Demand will depend on jobs, income and consumer sentiment.

How did you read the stimulus package announced by the government, will it spur demand?
Someone pointed out that this is not really a stimulus package, but more of a sedative. Certainly, initiatives such as increased allocations for MNREGA will help boost the rural sector. Focus on liquidity support and risk underwriting will provide some relief to MSME’s. However, there is not enough focus on boosting immediate demand. The quantum of actual fiscal spend is too small to support a recovery. A lot of the package includes RBI measures, future commitments and policy changes. These are necessary but not sufficient.