If we’re to understand the impact of this kind of jarring volatility in palm oil prices, what’s in store this quarter?
Q3 has been very good so far and compared to last year’s Q3 I would say we have strong double digit growth. The economy is generally doing well and consumers are quite happy with price levels, consumption has opened up, the wedding season is at its peak. We have basmati rice, maida, besan, sugar. I can see that all the brackets are doing very well.
If commodity prices go up, you raise prices and the top line goes up, but margins tend to suffer. Will the opposite be the case now that commodity prices have started to fall? For shareholders, could there be an inverse situation where the top line will contract or remain sluggish but margins will increase?
Usually with any fast moving product, when the prices of the goods fall, the brand starts giving better margins and this is also true for us. So when prices go up, we are under pressure to manage market share. Sometimes we can’t raise prices as much as required, but when they come down, we feel comfortable and in a better position.
Given that the report seems to suggest that we are seeing a recovery in rural markets as well, is that the case for your company as well? What are the segments where you see good growth?
Usually the second half is always better for rural demand. We saw this coming from October because October was a big festival month with both Dussehra and Diwali along with Chhath in Bihar and East UP. Mating season starts from November 15. So there is clearly a demand. Peak rural demand will come in Q4 and Q1 next year.
Usually after the harvest starts, rural India gets some money and starts spending. I expect costs to go up from November once the crop hits the market and they start getting the money in their hands.
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Where do you see commodity prices going because while we’ve seen a sudden drop, we’ve just been going through some of the reports from the food ministry in India and they indicate that there could be a further drop in edible oil prices. Do you feel that these peak prices are now behind us and we are expected to see further cooling?
Prices decreased in Q2 and now prices are almost stabilizing. The price of olein today is almost 15% lower than the same period last year. The price of mustard oil is also 15% lower than the same period last year. So, looking at the current prices, consumers are also comfortable. We as an organization are comfortable and the supply chain remains comfortable. We should not speculate beyond the point because there are many other factors that can affect – whether sowing in Argentina or rainfall in Malaysia, Indonesia. This is all out of the calculation at the moment, but we are all very comfortable at these prices. Consumption is happening and the market has opened up, so now there are no problems.
Which are the categories where you expect double-digit growth and which are the categories for Adani Wilmar where you think the growth could be single-digit because of the base?
For edible oil, we are quite confident that we will show strong double-digit growth for Q3 and Q4. We’re pretty confident there because of the way things are going at the moment. In terms of food staples, especially wheat flour, maida, sugar, rice and everything else, we are going at a steady pace of about 30-35% annually and so on quarter to quarter, we will continue to grow this in the last quarter year to this year year.
I am sure we will grow by around 35-40% on packaged foods. Going forward, in two to three years, India will become the most populous country with the youngest median age of 28 years. With better education, better health awareness, the overall food business should look much more positive in the coming days. Another thing I would like to say is that the recent changes in the GST law for brand and registered or unregistered have helped a lot. Our branded staples business, especially besan, daal, aata and rice, has shown a big improvement because many players are not paying 5% GST. So this delta has become very comfortable and the brands which are of good quality will surely grow and we are also getting better results.