The fast moving consumer goods (FMCG) industry is gearing up for July 1st. In an interview to CNBC-TV18, Saugata Gupta, MD & CEO of Marico spoke about the goods and services tax (GST) rollout.
Marico will pass on GST benefits to customers, said Gupta.
There would be some short-term hiccups due to GST but that is going to be very transient, he added.
Below is the verbatim transcript of the interview:
Anuj: Have you done the calculations and in general the belief is that the GST will benefit FMCG companies, the large ones. Would you pass on the benefits there?
A: I believe the way the government has tweeted the four slabs, it is both revenue neutral for the government, its inflation proof for the consumers and there are certain cases, obviously we will pass on the benefit to the consumers. I believe that over the long-term it provides level playing field for organised players. It gives much more simplified way of doing business. There are enough opportunities for optimising networks and supply chain where there are current inefficiencies because of the fact that there are some restrictions, interstate sale and other things, which will go. So overall long-term, it's good for the economy, good for organised players. There would be some short-term hiccups but that is something which is going to be very transient.
Latha: How long will the hiccup last. Do you expect this disruption to last long?
A: There is a trade destocking that is happening across, in most of the sectors. I guess there will be a cut-off from June 30th to July 1st. It might take some time for business to come back as usual.
As far as we are concerned, our preparedness should be that -- obviously it will take couple of days to change over to new systems but within the first three days of July as the GST kicks in, we should be in a position to procure from all our vendors, ensure that we are able to do transfers of stock and able to invoice to all our distributors. I think the immediate environment to ecosystem; obviously we are ensuring that there is 100 percent preparedness. Further down the chain especially in wholesale and trade, there would be continue to be some disruptions but having said that over the medium-term organised players will benefit. It is good for the consumers, it is good for the government because we believe that the compliances will increase and the tax collections will increase and business in terms of supply chain and other networks will become simpler.
Anuj: But in the near term, the likely impact on Q1 and Q2?
A: Right now it is difficult to give a perspective because all depends on what happens in last ten days.
Quarter one; obviously there would be an impact especially in June. As far as Q2 is concerned, it depends on how soon things get back into normal business operations. I believe that depends obviously on how quickly some of the trade gears up to the new system, new regime.
I do not see post July when GST kicks in, there is a consumption loss. There will obviously a onetime supply chain network loss. However, over the medium-term I think some of the channels like wholesalers and all have to rediscover their business model and companies with much more direct distribution will have less reason to worry than people who have significant amount of wholesale distribution.
Latha: Where does all this leave you? You guided for 8-10 percent volume growth in FY18. Will that be hit at all in H1?
A: I think so. As I said that we do not have a complete visibility of Q2 right now, the level when things get back to normal but having said that if the way the monsoon is, food inflation continues to be low, economic growth is decent. I believe strongly that we should be able to deliver that in the second half of the year.
Anuj: Will you make up for the lost ground in the second half?
A: No, I am talking of delivering 8-10 percent in terms of second half. I do not know how much you can make up because it will be very difficult to make up some of the losses which have happened in the first half of the year. Having said that I believe things will get back to normal, hopefully, sometime towards the end of Q2.
Reema: Is there a downside risk to your 8-10 percent volume growth guidance for FY18?
A: I would think so but as I said it is too early and all I can tell you is there is some stress as far as quarter is concerned, in terms of June when there has been significant disruption in business across all sectors but we are pretty confident that once things get back to normal, the second half will be back to normal and once GST comes in there could be potential advantages for certain players in terms of who have more direct distribution, who are more organised and who are much more prepared for GST and transiting into GST in a smother manner.
Latha: Your target was 20 percent margin for India business. Would there be risk only for this year?
A: That is long-term margin guidance. Obviously there could be hiccups this quarter but I do not think that gets impacted. In any case as an organisation we want to ensure that we continue to drive volume growth and market share and subject to the kind of margin which we have talked about over the medium-term of 20 percent.
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