moneycontrol.com
There may have been some slowdown in discretionary spends by consumers, growth across Godrej Consumer Products ' key categories -- personal care, hair care and household insectisides -- remains strong, according to a top company official.
"By and large the FMCG sector wil be insulated from the slowdown. In discretionary spends, yes there has been some slowdown...(But) on a overall basis, demand traction in soaps continues to be strong, and across our categories we see continued strong demand," P Ganesh, CFO, told moneycontrol.com in an interview.
Godrej re-launched its Cinthol range last quarter and also introduced shower gels under the brand for the first time. He says the market response has been good and the company continues to gain market share in soaps. Shower gels is still a miniscule market in India, but is an emerging category, with a potential of becoming big over the next few years, Ganesh added.
Godrej, which also counts Godrej No 1 among its top brands, is the second largest player in soaps (volume as well as value market share). Hindustan Unilever, the maker of Lux and Axe soaps and deos, is the market leader.
Godrej Consumer's third quarter consolidated net profit rose just 3 percent year-on-year to Rs 172 crore, on the back of a rise in advertising and promotional spends to drive new launches. Net sales were up 26 percent at Rs 1,691 crore, but, it disappointed the street with just 2 percent volume growth in its soaps category, despite the Cinthol re-launch.
"The discretionary and premium categories were under pressure for the last 2-3 quarters. However, in Q3, the essential categories, such as toothpaste, soaps and detergent, came under pressure," according to a sector report by brokerage Sharekhan. Other companies like HUL and Colgate Palmolive too saw their volume growth slow down.
But Ganesh insists that Godrej's sluggish volume growth was more due to the new packaging norms that came into effect.
"Q3 was also impacted by the new packaging norms, which came into effect. At unit level we didn't see any fall. It was more at the volume level. For instance, our largest SKU (stock keeping unit) in soaps has come down to 100g from 110g to be in line with packaging norms. So typically if a consumer buys a pack of 4, in normal course he would have bought 440g, but today the same pack is 400g. For a full year, there won't be an impact," he said.
Apart from the domestic market, growth in Africa, its other key market, was also some what slow in Oct-Dec. Ganesh said that growth there was under 10 percent due to reasons like a transport strike in South Africa, some disturbance in Nigeria and elections in Kenya. In Africa and other markets, prospects will remain bright in the long-run, the company feels.
"If we look at our acquisitions, both Latin America as well as Indonesia, we have grown at 20 percent plus CAGR in three years. These have continued to perform very well," Ganesh said.
Godrej is betting big on growth in Africa and is currently integrating the acquisition of Darling Group. The company had acquired 51 percent stake in the pan-African hair care company in 2011.
"We have completed integration in South Africa, Nigeria, Mozambique and Kenya. This accounts for 65 percent of total Darling revenues. So we have a 51 percent stake in 65 percent of Darling revenues. Eventually we will get into much larger number of countries where Darling has its footprint and then at a later stage we would look at converting the 51 percent ownership into 100 percent ownership. That would be three years plus down the line," Ganesh said.
South Africa is a large hair colour market, while there is a big demand for hair extensions in sub-Saharan African countries (estimated market size of USD 1.5 billion.).
Godrej is also very active in the domestic hair colour market. It launched cream hair colours last quarter, positioned at a premium to its powder hair colours but at a discount to Garnier Colour Naturals from L'Oreal, its nearest competitor.
Apart from hair colours, the company is also looking at using its expertise in household insecticides to expand in Africa. Godrej recently launched the Goodknight brand in Nigeria and Ganesh said that in the long-term they will expand it to other markets, especially given the strong demand for insecticides there.
The company will continue to seek opportunities to expand in emerging markets similar to the ones it is present in across Africa, Latin America and Asia. However, it doesn't currently have plans to tap very large markets like Brazil, he added.
Godrej Consumer shares were marginally lower at around Rs 748 on NSE in noon trade on Monday. The stock has surged 56 percent so far this financial year.
nachiket.kelkar@network18online.com
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