During the next two or three quarters, Bajaj Corp should see a much better rural volume growth than the last two years, said Sumit Malhotra, MD, Bajaj Corp, in an exclusive interaction with ET NOW. This apart, Malhotra also shared his plans of brand extension, new launches and acquisition.
Edited excerpts –
Last quarterly reported data from all the FMCG companies were strong. What has been the experience so far in the month of August? What we know is the picture for the quarter ending April, May and June but what is the update now because already half the quarter is over?
This quarter is also good, though August is still to be seen. The monsoon rains in the various parts of the country have affected the first week of August but I am sure that with the offtake numbers being strong, it will catch up in this quarter itself.
Large component for Bajaj Corp is largely crude prices because you have a large dependence on crude derivatives. So given where crude prices have been what has happened to you on the raw material end, is there scope for you to increase prices further?
Two parts of the question to what has happened. In the first quarter if you look at our results, our gross margins actually went up and that was largely because we had done some calculated buys in the beginning and we had stocked up for light liquid paraffin which is the largest part of our COGS (cost of goods sold). We had stocked it up earlier so we were not that badly affected by the rise in crude prices. But having said that now we are running out of that stock and therefore the real effect of the crude prices rising is going to hit us during the quarter because of which we have already taken a price hike in August to the tune of around 3-3.5 per cent to cover up for that price hike of light liquid paraffin.
Do you think the demand environment has picked up in a manner that is sustainable in terms of volume growth? We have seen a big bump up that has come in primarily through contribution from the rural economy. Can that build on gains for the trend that you would foresee as far as volume growth goes for FY19?
Yes, I am quite hopeful that it will because actually the way we look at it is trends and not one quarter at a time. And if you look at the last three quarters, slowly but surely the rural demand is picking up and therefore I believe it will continue to pick up during the next two or three quarters and therefore this financial year you should see a much better rural volume growth than last two years.
What is it that you are doing with one of your most recalled and sought after brands that is Nomarks because as we understand it has had a fairly quite a few declining quarters, almost five at that. What is it that you are doing for relaunch, how is it that you plan to reposition this product?
If you have noticed, we have restaged this brand. We are pushing towards ayurvedic segment but also with a premium look and feel. It is very different from the other skin creams in the market. So, we are doing three things – one is we are working and we are communicating about the benefits of Nomarks that it starts working from day one. Second about the non-steroidal nature of this product because a lot of the other competitors in the market are steroidal in nature and we are ayurvedic and the third is the look and feel of this product which is really premium in our opinion. So, I think all of these three things should work in favour of Nomarks. In the last quarter, the growth rates have picked up. We have grown more than around 40 odd per cent in the last quarter itself.
Are there any plans for any kind of a brand extension or new product launch from your end because up until now some would argue that you are pretty much a two, three product company, will that be the focus in the coming years or there could be extensive diversification as well as brand extension from you?
I think you are right, you will see three parts of it; one is basically new launches within the brand or outside the brand. Second, you would probably see the Almond Drops franchise being extended and the third could be an acquisition that comes along the way.
Acquisition, is it going to be a domestic one or is it an international acquisition that you are vying for?
It could be either. We are working for both, I do not know which one happens first but we would prefer the domestic acquisition first because that is our core strength.
Who would you say is your nearest competitor?
In hair oil, our competitors are basically Indian grown companies like Marico, Dabur, Emami in various segments. For example, in terms of Marico they would have the coconut and the heavy amla, Dabur would have the heavy amla, Navratan has a very strong franchise in cooling, so all of us are basically Indian grown companies. In terms of multinationals, really no one has yet been able to make a sizeable dent in all of this.
I remember I had a conversation with you a couple of years ago and you said look the disruptive trend in my business is that Indians are no longer tilting towards sticky hair oil category, that is a category which was a large category a couple of years ago now that seems to be changing. What is the update on that, can you tell me that what is the growth for the hair oil market, what is the growth for your category and have you managed to gain market share because you represent this so-called non-sticky oil category?
See, when we spoke around five years ago at that point of time, coconut was by far the largest hair oil in volume terms, it still is, by far the largest but the gap between the value-added hair oils and the coconut hair oils have shortened. So, now you have the largest category yet being coconut then followed by what we call the non-sticky or light hair oils followed by the heavy amla all of this in terms of value. We look at ourselves in terms of market share within the total branded hair oil and now we are close to around 10 per cent of the total branded hair oil and even if you take the coconut hair oil into consideration, we would be the second largest hair oil in the country today in terms of value.
I wanted to probe you a little more about your acquisition, is that going to be in the hair oil category or is it going to be a different product that you are looking at?
It may or may not be in hair oil but we are not only looking at hair oil because in hair oil we are more or less present in all the categories except coconut which really does not make sense to us because there's the reason to when is basically the rate at which you buy copra which we really do not have any expertise. So, more likely than not it will not be in hair oil. But having said that you should look at what your core strength is and I think our core strength is distribution. So, a category which can go through our distribution system which is fairly large, we are close to four million retail outlets now with our Bajaj Almond Drops, if we can leverage that somehow for the new acquired brand, then it makes our life more simpler.
Otherwise, if we need to create a whole different distribution system for the acquired brand it really does not work in terms of synergy for us. So yes, we are looking at all types of personal care brands with the express purpose that we could take it through our distribution system which we believe is our core strength at this point of time.
Do you plan to close it out before FY19 and secondly and how much money have you set aside. What is the kind of valuation that you are willing to pay for this new brand whichever one you foresee?
See, answer to the first question, you really do not know when it will close because there is a process of due diligence, process of negotiation and signing the deal which could happen very fast or could take a lot of time if there are multiple bidders to any brand. So, I do not have an answer to your first one. In the second one, we currently have around between Rs 350 to Rs 400 crores of cash. We are a little shy of taking too much debt so at best you think about 1:1 cash debt which would mean a total payout between Rs 700 to Rs 800 crore.
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