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    Next 2-3 quarters will determine new normal for growth, says Pidilite Industries

    Next 2-3 quarters will determine new normal for growth, says Pidilite Industries

    Next 2-3 quarters will determine new normal for growth, says Pidilite Industries
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    By Sumaira Abidi   | Prashant Nair   IST (Updated)

    Next two-three quarters will determine the new normal for growth and the company is cautiously optimistic on demand, said Bharat Puri, MD of Pidilite Industries.
    "Given the good monsoon, the macros that we are seeing and given the mood in the field, I would say we are cautiously optimistic," Puri told CNBC-TV18.
    On Kerala floods, Puri said it will take some time to recover.
    "It’s unfortunate what has happened, the scale of the disaster is massive but having said that Kerala is also India’s one of the most prosperous state, so hopefully, it will bounce back over a period of time," Puri added.
    Edited Excerpts:
    What is the mood like? How companies like yours are being received and also what is the feedback on the ground because in the last two-three quarters we have seen a lot of these fast moving consumer goods (FMCG) companies' commentary has become stronger. So is it just that there is a base effect or are you seeing some sort of actual revival in demand and if you could give us some colour on what is happening on the ground?
    It’s difficult for me to say what the mood is but the situation from the ground is, I would say we are cautiously optimistic. Yes, there is a base effect. In the last two quarters, you are cycling demonetisation and the goods and services tax (GST) impact.
    While demand is good, what the new normal is, frankly, the next two-three quarters is going to tell you that. Given the good monsoon, given all the macros that we are seeing, given the mood in the field, I would say we are cautiously optimistic.
    How is cautiously optimistic numerically different from optimistic?
    I suspect by a few percentage points but the signs are good. If you look at our results, for example, we are delivering steady double-digit volume growth. If two quarters later we are still delivering good steady double-digit volume growth then you are optimistic and not cautiously optimistic.
    So let’s wait for two-three quarters more and then even the new normal will be very clear.
    What is it that is giving rise to this little bit of caution that you may have. Is it the currency that you are most worried about, is it crude prices or is it something else entirely?
    I would say two things. One is definitely the input prices and currency because it obviously has a double impact on input prices. The inflation is always the single biggest dampener for growth in any emerging market and that is true for ours also.
    So that is the note of caution one. The note of caution two is normally fast moving consumer goods (FMCG). The consumer goods tend to be at 1-1.5 times gross domestic product (GDP) growth.
    Therefore, as we look forward, let’s see if that continues as GDP growth comes in at the 7-7.5 percent mark then most FMCGs are looking at double-digit growth.
    Q: Are you not very confident that underlying growth will sustain? GDP growth – is that where this is coming from?
    A: If it sustains at 7-8 percent then you are at the double-digit mark but if you look at FMCGs over the last two quarters, look at Pidilite, we had growth of 23 percent in our consumer sector last quarter.
    So those kinds of growth will sustain but the fact that there is a steady undertone and we are confident of steady growth, it is what the new normal is.
    We have all seen the FMCG industry used to be twice the GDP, it became 1.5 times the GDP. It seems to be going back to 1.5 times. Hopefully, if things are good then it could go back to two times the GDP.
    Q: Let’s talk about some internals of your business. Let’s start with the waterproofing segment; given the monsoon season, given the flood situation in Kerala, how do you expect business to pan out for this segment at least for the coming quarters?
    A: As far as waterproofing is concerned, obviously, the external environment, the immediate environment makes a difference. In waterproofing, you are actually competing against non-consumption. Out of 10 homes, three are waterproofed properly.
    So irrespective of the external environment, monsoons if that three becomes four or five, it is the larger task for leaders like us than worrying about the external environment. However, coming to the external environment a good monsoon is always welcome, it impacts real growth and the mood as far as their trade in India is concerned and it seems to be a good monsoon.
    As far as Kerala is concerned, it will take some time. It’s unfortunate what has happened, the scale of the disaster is massive but having said that it is also India’s one of the most prosperous state, so hopefully, it will bounce back over a period of time. I think it will probably take six months before things start coming back to normal in Kerala.
    Q: What are the big risks apart from input prices which keeps going up and down, but is there any risk in terms of the business itself, the industry itself that you see?
    I think the risk is external input prices, currency headwinds and what I also keep telling my team that let’s not ever become complacent. Other than that we are strong believers in the India story, our categories are well-positioned vis-à-vis the India story.
    If India grows, our categories grow much faster and that is why we are cautiously optimistic.
    In your interaction with analysts recently, you downplayed the theme of the move from unorganised to organise. Why is that? That was seen as a big driver for a lot of segments in the FMCG space. You are saying you are not seeing that to a large degree?
    We are not seeing it to a large degree. We are definitely seeing it. There are two elements to it; we are seeing it but it is not to the extent that most people felt that there will be a substantial move from unorganised to organise.
    I think it is a structural thing. It would probably take a little more time than we think, especially in India. I think it will happen over the next one or two years. It is not going to happen in the next three-six months.
    Q: Going forward now what will be the big growth driver?
    The way we look at it obviously underlying economic growth is something that is a growth driver but for us given the categories we operate in, we actually segment our portfolio into three basic buckets what we call core businesses, growth businesses and pioneer businesses.
    In core businesses, growth tends to come via driving penetration, via driving sales and distribution and via premiumisation. So we tend to grow at 1-2 times GDP in our core categories.
    In the growth categories, waterproofing being a growth category for example, where you are competing against non-consumption, you have to create the category.
    There it is about holistic brand management, it is about consumer and user education, it’s about sales and distribution. You would look at growing 2-4 times GDP and then you have pioneer category which is is very small and underserved today but it is tomorrow’s growth categories.
    So as a portfolio in Pidilite we tend to make sure that we have a business that spans all three of these buckets, 2/3rd of our business currently comes from growth categories, 1/3rd comes from growth and pioneer and getting that portfolio and making sure that it is robust in that way is our biggest driver of growth.
    Has the industrial business turned the corner? Is there a trend you foresee here now?
    Yes, if you look at our businesses and If you look at the last two quarters. We have a large amount of  B2B business which goes to the small/medium scale industries.
    It suffered a bit last year but it is slowly coming back. So our growth rates, for example, in the first quarter was double-digit. We are expecting that it will also come back.
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