The commodity price cycle has turned since we spoke to you after the second quarter. What does that mean for input costs? Also, a lot of companies like yours were able to considerably reduce operational costs — are most of the gains from something like that fully claimed. Do we see the curve on costs now swing back upwards over the course of the next few quarters?

I think that in the next six months you are going to see substantial commodity inflation. This is because of two reasons. One is globally, a lot of people under-anticipated or did not understand how quickly things would bounce back. Given the bounce back in the Chinese economy we are already seeing for some of our principal raw materials, because China’s consumption has increased, global prices have gone up. There have also been shortages; a lot of plants that needed maintenance have taken that and there have been various issues. I actually think the next six months are going to see commodity inflation but because this is not strictly demand based, on a longer term basis I think things will stabilise, in three to six months. But, I do think that in the next three months, extending to probably six you will see both raw and packing material prices actually have an upward trend because there are shortages now and we live in a global economy. These are all global price increases and we’re already seeing for example the pressures of that currently. Also given the issues around like ports and the import-export imbalance and therefore the clogging of ports, etc. I think managing supply chains and managing commodity costs is going to be critical in the next six months. I don’t see it as a long-term trend because it’s not that demand is suddenly going to go up by X%. It is just that people had not anticipated that demand is going to bounce back quickly and the Chinese economy is going to grow so healthily.

If you had to balance out some of the increases in input costs is there scope anywhere else in your business to curtail costs any further or have you squeezed the best out in the first six months of this fiscal? You’re going to have to pass on increased input costs to the consumer or absorb it?

The last six months very frankly have been very unnatural because we’ve been very fortunate on commodity costs also. They’ve been at all-time lows and we’ve always guided the market that at Pidilite, we like to keep our margin between 20% and 24%. In the last quarter, we’d actually gone up to 27-28% and we’ve said that listen, our longer-term objective is to remain a 20-24% and invest the larger amount back into growth if we have it. Otherwise, we will price it only 60 or 70% of inflation. So, we may see a moderation in the percentage margin. Hopefully, what we’re going to push then is for the absolute numbers because what you’re also looking at it this period is for growth to come back. I would rather keep my price premiums at a 10-15% level, because more than that actually let’s open the back door for lots of people to come in, and focus on greater volumes rather than looking at these margins which are in a sense, unprecedented.

So you’re agreeable to absorbing some of the cost pressures and holding prices so that you can actually further expand on market share. And allow for your margins to come back to your guided band of 21-24 as quickly as Q3 and Q4?

Not Q3 but it will start happening. It is a trend because you buy now and the raw material will get consumed in Q4. If you buy in Q4 it will be consumed in Q1. So, it will be a trend. As global supply chains crank back into action, let’s see how long these price increases last. It would also be unfair for us to assume that this is a longer-term trend.

You spoke of market share gains. Like you said, larger companies, better-known, national brands have managed to pick up demand faster. Also, over the last several quarters you’ve been expanding into into smaller villages. On account of these, what have your market share gains have been like this year?

There is no doubt about the fact that we are gaining market share. It very difficult right now to quantify because you don’t have a feel as people’s numbers start coming, a lot of the regional players, the less organised players—you will see a longer period of time before we can see the impact.

Really, there are two things that are happening. One is your broader reach via having a supply chain. Pidilite has over 40 manufacturing units across the country. Therefore, you’re able to adjust and make sure that your availability is deep, and it is always there. The second is people saying that listen, if I’m spending my money right now, let me go to a trusted brand—whether it’s Fevicol or Dr. Fixit. I think it’s very difficult to say if we’ll gain 2% or 3% market share but definitely you will gain market share and probably you will know better in the next three to six months. It’s clear that you’re growing faster than the market.

You’re hoping that revenue contribution of ‘growth’ and ‘pioneer’ categories will increase from roughly 30% right now to 50% in the next five years. In a normalised world, does that mean accelerated top line growth? Your trend sales CAGR has been around 8% for the last five years.

Yes, it has been between 8-10% depending on the base but yes, the whole objective in a sense, transforming our portfolio over a period of time is to accelerate the top line.

So, you would go from 8% to what?

I keep telling my teams that listen, our targets have to be internal and we must be (at) double digit volume growth. For an organisation like ours, at our size, if we’re growing in double digit volumes, then you’re truly making an impact. So that’s what we’d like to come back to.

Double digit could be anything from 10 to 16, 18 to 20?

The days of 18-20, I think are far away. As long as it is double digit volume growth, I’d be happy.

You have about nine new facilities that are currently work in progress. At any point in the last six months did you reconsider any of this capital expansion plan?

See, we obviously kept a close watch and wait in some of these. We said let’s wait and watch but as the situation became clearer, we’re strong believers in the India story and India is home market and, in a sense, we are getting ready for the next wave of growth. So, as we speak now, we have close to 11 new facilities coming up.

There are some facilities in the core categories and there are a substantial number of them in the new growth and pioneer categories because a lot of these facilities are integrated. On a broad basis, three of the facilities would be core categories, six would be in new categories and two would be international.

Are there sectors in your business that have not yet shown any signs of recovery?

Everything has in a sense has improved trend-wise but the sectors that have taken the longest to come back are the organised real estate, the large projects. Footwear and leather for some reason, we supply a lot of adhesives for the footwear industry, the B2B businesses have tended to be a little slower. In B2B, it’s leather, footwear, organised real estate, the large government projects are now coming back. So that’s the area that has been the slowest.

What’s the view from outside India? You are present in the Americas, Africa Middle East…

Fascinatingly, this has been in many ways a surprising year globally, because if you looked at Brazil’s numbers, you would think that Brazil is going to suffer more than India. Actually, this year, our Brazilian business will have its best year ever. Forget the impact of Covid. On pre-Covid numbers, they are having very healthy growth. I look at the U.S. arts and stationery business, again, this is benefiting from the in-home trends, etc. In fact, international has been a bright spot. The Bangladeshes of the world almost mirrored India and came back like India did. Places like the Middle East and Africa, for example, you would think Africa would be the worst impacted by the pandemic. Actually, Africa has not had any substantial impact and Africa continues to motor along and is looking good.

Does that prompt you to recalibrate at all your deep focus on the home market and your peripheral focus on international markets?

In our case, we’re very clear. We will first get the model right in the Indian market and there’s enough scope and potential to do that. Once we get it right, we will reapply to all markets that are similar to India. Therefore, in effect to all emerging markets — which is why the SAARC countries, which is why the emerging Middle East, which is why Africa. Because we believe these are the places where we can just re-apply the Pidilite model. We’re not interested in the Europes and the U.Ses because we’re not interested to compete with a different model. We know how to win in these markets and we’re going to focus here and frankly, this is four-fifths of the world.

Anything eminent besides some of the collateral impacts of the Araldite acquisition?

No, as we speak, we’re building a new plant in Kenya which has just started off. We’re looking at other locations in Africa.

Organic growth or inorganic growth?

Both, we are looking at both organic and inorganic. Inorganic in a lot of these countries tends to be difficult. But organically if I look at my Africa growth rates, these would be high double digits over a five-year period.

You are maybe putting a little bit more emphasis on the international growth piece at the end of this year than you had anticipated earlier on?

I would say we were more encouraged by international, yes but again we look at it as three to five years and international, we know is going to be a driver. If I look at all of my international sales, it is close to 15% of my sales. It’s not so small anymore but yes, it is something that we know has great growth possibilities.

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