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Growth is Nestles main focus, will selectively hike prices if needed: Suresh Narayanan

Petroleum price increases and devaluation of the currency ar..

Petroleum price increases and devaluation of the currency are going to have an impact on the overall cost structures. When it becomes unmanageable, we will hike prices selectively, Suresh Narayanan, MD, Nestle India, tells Ajaya Sharma of ET Now in an exclusive interview.

Edited excerpts:

Consumer companies seem to be in a good shape in volume term. How confident are you regarding growth in next few quarters?

We have been recording very steady volume growth for the last six-seven quarters and it is secular across categories. That is what is making the difference. In overall terms, this has been the trend in the consumption goods sector itself. It has got to do with the fact that the consumption story in India is becoming stronger and it is subject to a satisfactory monsoon. This year it looks more than satisfactory and with rural growth having an uptick in the last couple of quarters, the consumption sector can look forward to some healthy period of growth in the coming period as well.

Is there a visibility that the healthy volume growth may sustain for next few quarters at least?

As an economy we have gone through the bumps of demonetisation, and the process of rationalisation of GST rates. There was also turbulence in terms of the wholesale business because of these changes. That has now settled in. By and large, most organisations including Nestle are facing a period of relatively stable growth and it is the hope of companies like mine that this trend continues into the future as well. It does not look like the music is going to stop very soon but again, I am not a soothsayer. All I can say is that the trend seemed to have been positive in the past and hopefully will continue to be likewise in the future.

I read your commentary recently. You said that Nestle India wants to be a complete foods company. What is the overall strategy?

As I have mentioned before the challenge at Nestle is not what to launch but when to launch and we have put growth as the centre piece of our strategy. That is bearing fruits in terms of not only secular growth but also growth over a period of time in volume as well as value terms. I made a comment on the breakfast opportunity. Breakfast is the biggest and the most important source of nutrition for the day.

If that is true in nutritional terms, then as a company, I can say in all humility that starting from milk to coffee to ready-to-drink to Maggi atta and oats noodles to breakfast cereals, NesPlus and yogurts, we really have a full range of products that can be offered to the consumer. Over a period of time, we will build on this opportunity in the portfolio of the company.

Your numbers are back and perhaps higher than what it was before the Maggi debacle. Are you happy about it?

Leadership is always a very happy journey. When you see people around you smile you also thrive. My satisfaction as a leader in this company has been the fact that I have been able to contribute in a small way to the uptick in the fortunes of the company. But beyond me, it is consumers and stakeholders who have played a very important role in what has been done. By no stretch of imagination, do I talk of complacence because that is a sign of weakness to come.

What we have achieved as a company gives me a lot of strength and humility that beyond me, there are so many millions of people who are making such a positive impact on the company. I live for the purpose and values of this organisation and in the future, if the consumers continue to bless me and to bless the products of this company, we will continue to be one of the valued companies in this country.

What about industry margins?

In the first half, we have had very clearly enhanced margins, 500 to 600 bps on operating margins. That really came on operating profits and that really came out of the kind of tailwind effects that we have had on commodities together with some cost rationalisation and efficiencies that we have put in. Plus Maggi also came back has given us a scale effect.

As we look forward, clearly the clouds are gathering. This round of petroleum price increases and also of the devaluation of the currency is clearly going to have an impact on the overall cost structures that we have. We are still confident that with the current levels we should be able to mitigate a lot of what is happening but if it really goes beyond a threshold, then we might have to take selective price increases.

How is the growth coming in from the tier II, tier III towns? Some of your peers are saying that there is a lot of vibrancy and buoyancy beyond the metros.

No I always say that there are many Indias within India and I would probably echo some of the comments that you are hearing from the industry. Tier II, tier III are really starting to perform well. Also if you look at the e-commerce business, lot of the orders are coming from tier II and tier III and that only tells you that there is a huge amount of latent demand because I would really call it the convergence of aspirations.

There is a convergence because of the whole telecom boom that is happening in the country. There is a convergence of aspirations on lifestyles and values between semi-urban rural India and urban India. That is leading and fuelling the demand that we are starting to see.

Would 3% to 5% price hikes suffice if they need to be?

I do not wish to speculate on price increases. All that I would say is that since I have put growth and volume growth at the centre piece, I would try my damned best to mitigate as much as possible the cost increases that come my way. Therefore when I say selective, it is only when it becomes unmanageable that we may have to do a trade-off.

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