'Our target will come from rural areas as there are more outlets there.'
Adani Wilmar expects margins to improve as prices of commodities stabilise.
After the company's March-quarter results, Angshu Mallick, managing director (MD) and chief executive officer (CEO), and Shrikant Kanhere, chief financial officer (CFO), spoke with Sharleen D'Souza in a video interview.
Will retail penetration be the driving force for volume growth in the edible oil business?
Mallick: We are in the staples business which is everybody's need. They either buy loose or packed, but they need staples.
Now, distribution is the key to success for any staples company. Consumers today are busy and don't wait for a brand to come to a shop.
They can always consider an alternative brand. We have seen that with better distribution, better is the reach, and you are ready to win this game.
We have been building our infrastructure and we are touching around 730,000 outlets directly and indirect coverage is around 1.8 million.
And, sometimes in a quarter, it can also be 2.1 million. The number of distributors is important and your supply chain mechanism should be very strong.
What will the contribution of FMCG be in FY25?
Kanhere: If you look at our numbers for the past couple of quarters, the fast-moving consumer goods (FMCG) volume growth is far more than the edible oil growth.
This is the first time this year that we have grown double digits on edible oil after at least two-three years.
Even if edible oil keeps growing at 10-11 per cent and FMCG at over 30 per cent, the overall contribution of FMCG will keep increasing.
Contribution of FMCG to overall revenue is at 17 per cent. Two years back, it was at 12 per cent. I think we should be seeing more than 20 per cent contribution from food and FMCG in the overall business.
How do you see commodity prices moving?
Mallick: Stability of edible oil may continue for at least three to four months, unless some event happens all of a sudden, like the Red Sea problem or Ukraine war.
If these issues don't occur, then the prices are stable. We will see good volume and good consumption.
This year, wheat production is good, but the government would like to build its inventory.
So, they have bought 20 million tonnes and want to buy 32 million tonnes more. In the month of May, they will buy the balance 12 million tonnes.
The government has enough grain, so wheat prices are likely to remain stable. I see India producing a good quantity of rice and slowly I think the export market will open up.
In pulses, we are unsure about the price movement.
How do you see margins playing out?
Mallick: Margins are likely to be better, because, as the prices (of commodities) become more stable, brands start giving you better margins.
This is because brands always play better when the commodities are safe.
Second is that as the volume goes up, your fixed cost comes down like advertising and manpower cost.
Between last and this year, if we grow at 20-25 per cent in food, then our fixed cost will go down and that will add to the margin.
How will the demand be in rural India?
Mallick: We are in the staples business. And, we are protected from such kinds of variations because these are essential commodities.
Every consumer in the village would like to have branded oil or branded atta in which we see good traction.
In fact, we have seen a 1 per cent increase in share in the rural segment. But FMCG companies are impacted because of high inflation and low consumption in villages.
Going forward, if the monsoon is good, rural will get enough energy to consume more and go back to when it was surely doing much better.
I look forward to a good monsoon. The rabi crop has been good and farmers have got good money. But they also need one more crop, particularly the kharif crop.
If that is good, then at least they have an assured income for one year.
What is your distribution target for FY25?
Mallick: Direct reach is the most important. Last year, we added around 100,000 outlets in the rural markets and almost 35,000-40,000 in urban areas.
We could directly reach 730,000 outlets. This year, in rural markets, we are presently available in around 34,000 towns and we want to reach 50,000.
If we reach 50,000 towns, then our direct reach can touch about 825,000 outlets. That is our target because in three years, we want to reach 1 million direct outlets.
Our target will come from rural areas as there are more outlets there.
Feature Presentation: Aslam Hunani/Rediff.com
