Commodity costs down, expect price drop: GCPL MD & CEO Sudhir Sitapati

Commodity costs have fallen "sharply" in the last few months, the margin situation is now "pretty good" and a revival in sales volume is expected, helped by price drops in some categories such as soap, said Godrej Consumer Products Ltd (GCPL) Managing Director and CEO Sudhir Sitapati.

In the last three-four months, a lot of commodities such as palm oil have deflated, he said, adding the inflation which is presently in the market is as a consequence of the high prices that were there six to eight months ago.

"So I certainly do not see price hikes in the short to medium term unless the commodity situation goes up. I see, in categories like in soaps and all, price drops," Sitapati told reporters on the sidelines of an event here.

 

Now the hyperinflationary scenario is gone off and the company "definitely expects volumes to revive", he said, adding there would be negative price growth over the next few months, but with better volumes.

Sitapati expects consumption to come back and the industry to see "brighter times ahead over the next nine to 12 months."

Many FMCG companies did not take up prices to the extent at which they faced inflation, which is why the gross margin was hit, he added.

"Certainly, commodity costs have fallen very sharply across all commodities, but they are still higher than what they were a few years ago. But compared to the peaks in March, and April of last year, they are much lower," said Sitapati.

Sitapati further said CPI (Consumer Price Index) also indicates inflation is coming down.

"If I would have bet, I would say that inflation would come down. Because if the underlying commodities come down then the market, I mean companies, do pass on these to consumers," he added.

GCPL has just now reduced the price of soaps, the lot which has gone into the market, extending the benefits to the consumers.

When asked about the outlook for the fourth quarter and FY24, he said: "I think on a margin situation it is pretty good. I would say because commodities are what they are lots of analysts calculate these. I would concur with that."

The Godrej group FMCG arm is working on innovations and introducing new low-unit price packs to drive volume growth adding new consumers. According to Sitapati, this is less to do for inflation but is for category development.

As part of that Godrej group's FMCG arm on Friday introduced two innovations in the HI (Home Insecticides) products, targetting the mass affordable market, democratising the category.

GCPL, which is the world's third largest manufacturer of HI products, was facing sluggish demand in the last three-four years, and Sitapati expects that more such affordable innovations would help to bring the fortune back.

"I hope this is the solution," he added.

GCPL operates in the domestic market with two brands -- Good Knight and Hit -- which together contribute around 40 per cent of its domestic revenue.

Good Knight, which is a Rs 1,000-crore-plus brand, mainly operates in electric liquid vapourises and Hit operates in aerosol sprays.

Presently 85 per cent of GCPL's HI business comes from urban areas but it expects these newly introduced products to help expand its reach in the rural markets as well.

"As a company, we are fortunate to have a large soaps business, which gives us a lot of rural distribution reach. So we have the roads for rural reach. But there are many outlets that don't stock either of these two formats, they will only stock a coil or an incense stick. So we hope, pretty dramatic improvements in the distribution of these on a pipeline that's already been built, thanks to first soaps and then hair colours," he said.

When asked about GCPL's inorganic growth strategy in India and other markets, Sitapati said: "We are a cash-rich company with growth ambitions. We are constantly evaluating inorganic opportunities at the right price and strategic fit."

For the financial year that ended on March 31, 2022, GCPL's revenue was at Rs 6,951.56 crore.