Adi Godrej, Chairman, Godrej group, says GST is a tremendous reform for India and if the rates recommended in the draft bill are implemented then it will be beneficial for the entire FMCG sector.
Godrej says that growth in their rural markets, which was earlier much better than urban market growth, has now slowed down. “We believe that going forward the entire sales growth has to come from volumes”, he adds.
Weakness in prices of key inputs like crude and vegetable oil will lead to better margins, Godrej says.
Godrej Properties’ Trees project has received good response and the company is likely to gradually launch many more projects in Vikhroli, he says.
Below is the verbatim transcript of Adi Godrej’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Ekta: There are reports, obviously preliminary and not finalised, which suggest that post the goods and service tax (GST) implementation the indirect taxation could fall to 17-18 percent versus 24-25 percent and that is going to be beneficial for lot of consumer related companies. How would that benefit Godrej consumer?
A: If the rates announced by the economic advisor are the final rates that are adopted by the government, certainly it will help. Total taxation should come down. That should allow us to reduce certain prices, it should allow us to increase promotion, distribution etc. So, that could lead to better growth in demand.
Anuj: I just wanted your overall take on what is going on in parliament and even with regards to GST. Do you think one and a half year of new government is there a bit of a disappointment in India Inc regarding the pace of governance or reforms or even some may want to use the term renewed policy paralysis your comments on that?
A: There is still a logjam in parliament. Until yesterday it looked like the chances of GST getting through in this session might be good but then with the problem announced in the court case regarding Sonia Gandhi and Rahul Gandhi I think again things have taken a turn for the worst. So, we have to wait and see.
GST is a tremendous reform. It will add tremendously to growth in this country. It will be very good for the consumers of this country. So, I do hope better advice prevails in it goes through parliament.
Ekta: Only around 10-15 percent of your total sales do come from the rural portfolio. Can you share with us what the trends have been in terms of rural consumption versus urban in the past couple of weeks including the festive period?
A: About 30 percent of our sales in India are from rural India not 10 or 15. Our rural growth was much better earlier than urban growth. Now there are at about the same levels and the growth rate overall have fallen a little. One of the major reasons being as prices are well under control because of input cost coming down the entire sales growth now has to be from volume growth. There is no additional sales growth from inflationary impact. So, overall sales growth is a little lower than in the past.
Anuj: You have got some kind of tailwind continuing with the kind of drop that we have seen in crude prices?
How much further do you think you will be able to improve margins because there is competition as well so there is some part of it which has to be passed on but ballpark number if you could tell us in terms of the margin improvement that we could see from Godrej?
A: Commodity prices continue to be weak especially as you rightly mentioned crude prices. Also vegetable oil prices are important input in our case and in case of some other fast-moving consumer goods (FMCG) company. Those are also well under controlled so commodity cost will be lower, input cost will be lower that should help margins.
Already as you might have noticed in the last couple of quarters our bottom-line growth rates were much higher than our topline growth rates. That situation will continue well into the future.
Ekta: Do you think your volume growth from Q3 might be better, same or may be lesser than what you have clocked in Q2 in the domestic markets? It was around 9 percent with a double digit growth in hair colours?
A: It is difficult to tell. Quarter is not yet over and we don’t make forward predictions but the growth should be similar by and large.
Anuj: I know that you don’t actively look at Godrej Properties any more but this was a big transition that took place regarding your Vikhroli project and the kind of response that you got. A word on the kind of market that we are seeing in Mumbai in terms of real estate and your future plans.
A: Just to correct you I do actively look into Godrej Properties not as Managing Director but I am the Chairman of the Board. We have done well in our new project The Trees in Vikhroli where we had record residential booking. It is a very well situated project. Now with the new road connections especially the eastern freeway it is very accessible. Vikhroli has become much more accessible in the past and most importantly because of the mangrove forests forest we have in our campus the quality of the air in Vikhroli is much better than the average in Mumbai as a whole. So, all this is helping us to do extremely well in the booking of residential properties there.
Anuj: What is the plan now for your land bank existing; land bank you have quite a bit of that in Vikhroli and the areas around that? How many more phases will we see of development at that land?
A: We have several projects in mind. Aside from The Trees we have other projects too so they will be gradually released as more phases are opened up.