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Rural demand unlikely to worsen further; will take calibrated price hikes: Godrej Consumer

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Rural demand unlikely to worsen further; will take calibrated price hikes: Godrej Consumer

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In an interview with CNBC-TV18, Sameer Shah, CFO, Godrej Consumer Products, said that the company will continue to take calibrated price hikes. Shah also expects rural demand to remain intact, even if it gets a little impacted in the short-term.

Sameer Shah, CFO, Godrej Consumer Products, said that the company will continue to take calibrated price hikes. He added that similar price hikes have been taken by competitors too. Elaborating further, he said that the company has taken a 10 percent price increase for the India business until now.

"We have been taking calculated price increases, something which has been underway since last year; we will continue to take calibrated price increases also going ahead. In terms of competition, generally, most of the FMCG companies have been taking calibrated price increases in the categories in which we are playing. We haven't seen any company holding back on pricing action. And in parallel, we would continue to take price increases," Shah said.
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On revenue, he said that 85 percent of the company’s revenue comes from consumer staples and 20 percent of its exposure is to rural India. Shah remains confident about rural demand and doesn’t expect it to worsen any further.
"For us, around 80-85 percent of our portfolio is staples. The rural contribution is relatively lower as compared to some of our peers. It's close to around 28 percent. But we do believe that rural consumption could get more impacted because of inflation as compared to urban," he said.
"So, in very short term, we expect rural demand to be more impacted as compared to urban. But hopefully, if the monsoons are as what they are expected at this point in time, we do expect that within 3-6 months, the demand should come back to normal levels. I'll be very surprised if rural completely slumps in terms of consumption. In the short term, the demand does have its own negative impact, but in the medium term, demand remains very much intact," he added.
On commodity prices increasing, he said that some of it might be transient. He shared that in order to combat inflation arising out of rising input prices, the company plans to work on its cost strategies. Giving details on inflation faced by the company, he said that soap segment has been impacted the most by rising palm oil prices. He also mentioned that consumer inflation may force the company’s discretionary portfolio to witness a pause as well.
Additionally, he expects some inflation, margin pressure for the next 3-6 months. However, he expects the year-on-year (YoY) drop in gross margin to be the least in Q4.
He said, "We will continue to take calibrated price increases to mitigate the impact. In parallel, we will continue to work on cost saving programs to nullify the impact of the increase in commodities. In this quarter, the YoY drop in gross margins will be the least if we look at businesses in India. If all goes well, perhaps we could even maintain our YoY EBITDA margins."
"The trends are very encouraging. What has happened over the last two-three weeks is that there is increase in commodities and input cost, which means that there could be inflationary pressure as well as margin pressures, maybe for next three-six months," Shah explained.
Watch the video for the full interview
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