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Corporate Feb 7, 2012

Marico's Mariwala: 'Will choose topline growth over margins'

By Sourav Majumdar

Fast-moving consumer goods (FMCG) major Marico Industries last week beat analysts' expectations by clocking a handsome 21 percent growth in net profits on 16 percent revenue growth, even as most companies were battling higher input costs and price increases. Marico's profits were aided by smart growth across categories, particularly its marquee brands - Parachute (13 per cent) and Saffola (15 percent).

In an exclusive interview with Firstpost, Marico chairman and managing director Harsh Mariwala, who recently completed his term as Ficci president, speaks about how the company managed such a sterling performance, his gameplan on acquisitions and his expectations from the forthcoming Budget.

Here are edited excerpts:

FP: Now that the results have been better-than-expected, what is the gameplan going forward? How did you achieve this performance?

HM: It's more to do with the culture of the organisation and what the top management is driving towards. The whole idea is to be focused and if you're focused on a few things you will add depth to those subjects and that'll lead to a culture of excellence. We are saying growth is very important, and action, not only for top management, but also down the line, is to drive topline growth.

Marico chairman and managing director, Harsh Mariwala. Photo: Forbes India

So if there is a conflict between topline growth and margin, we prefer topline growth, at least in the short-run, and as long as we're sure that in the long run, the margins will catch up. So the whole organisational thinking and DNA is to drive growth and gain market leadership.

The bottomline is a result of market leadership. If you're a market leader, you have pricing power and the ability to generate returns higher than others in the industry. So, the key thing is to determine where you want to compete, and then having defined that, try and become a market leader. Having done that, go and expand market size. Also, we want to be in sectors where there is relatively higher opportunity of growth. So the penetration levels in whatever you're doing should be amenable to a high degree of growth which, in India, is anyway possible.

FP: Your bottomline has also grown well this quarter...

HM: Yes, bottomline has grown. But when it comes to dealing with inflation and taking a price increase, we believe that if, to cover inflation we need to increase prices but that will impact volumes, we will resist increasing prices. Or we'll have a price increase in a gradual manner. So I think it's a whole organisation philosophy on growth, getting into sectors where we can be market leaders and wanting each of our brands to grow. And it's not just about growing a part of our business. Everything has to grow - domestic business, international business. I think we have seen that each of our businesses has grown, which is good.

Also, then we need to supplement growth by going into new territories, inorganic growth, etc. So the whole growth mindset is important. We don't want to be in a situation where in one quarter we have very high topline and next quarter we fall. We want to sustain topline growth.

FP: Talking of inorganic growth, rivals like Godrej have been making acquisitions globally. What is your strategy?

HM: Ours is more focused, both in sectors and geographies we should be in. Godrej has a far wider canvas in terms of the geographies they want to be in. But we want to be in emerging markets, Asia and Africa. So we won't be present in Europe and US even if there are opportunities. Even in Asia, we won't get into Japan and Korea, which are developed economies. We believe focus will help us. There will be synergies in terms of proximities to various clusters: so you leverage clusters in terms of supply chain, from the point of view of media spillages, travelling.

FP: Is there an amount you have set aside for such inorganic growth opportunities?

HM: I think it'll be futile to set aside an amount. We're okay as long as we know we can raise the amount when we want. We don't believe in keeping aside funds. As long as we know we can handle debt in a stress-free manner and without impacting the financials of the company and have the assurance from lenders that we can borrow, we're okay. And if we don't want to borrow that much, we also have the ability to unload something in the market by doing a QIP (qualified institutional placement) or issuing equity.

FP: The promoter holding is comfortable at 63 percent, so you have headroom, right?

HM: Yes, around that level.

FP: Any plans on acquisitions over the next few quarters?

HM: See, an acquisition always has to be done at the right price and must have the right fit. So, at any given point, there will be something in the acquisition pipeline. But that doesn't mean it'll fructify. Ultimately, there has to be a shaking of hands between the buyer and the seller.

FP: Do you think it's the right time, given global valuations? And will you focus on global acquisitions mainly?

HM: Again, within our defined areas. We'll look at India as well. We would be looking at acquisitions in all our markets. I don't think there has been a fall in valuations globally. There may have been a fall in valuations in the developed economies which are under pressure, but for the geographies where we are in, it has by and large remained the same.

FP: How are you tackling input cost pressures?

HM: This year, there's been a very high degree of inflation. At this stage, prices have stabilised. We've managed to do well because of market leadership despite price increases.

FP: You were pretty modest in your guidance and have surprised on the upside.

HM: Yes, over-committing is not in our DNA.

FP: One of the analyst reports even mentions good corporate governance as a big plus for your company...(There are only two family members out of eight on the Marico board)

HM: Yes, I read that. I think it's important to be transparent and ethical. We did a survey among analysts and most of them said we were the best. There always are opportunities for improvements which we will do. We were in sectors where, when we went public, the multiple we got was quite low. So we had to walk that extra mile in terms of standing out among the investing community. We tried much harder. Everyone initially equated us with a commodity company. Today, we are happy that for 49 quarters we have shown topline and bottomline growth.

FP: What are your expectations from the Budget?

HM: One has to be realistic about what the finance minister is facing. There's the fiscal deficit. He has to take some steps, and do some out-of-the box thinking to reduce the deficit. On the one hand, there are high levels of resources being allocated to some new programmes like the Food Security Bill and others. So that increases spending. At the same time, government has to raise money.

We had suggested, when I was Ficci president, that we could take some out-of-the- box steps like another amnesty scheme to bring in more money from outside or privatising the coal sector to reduce pressures on coal linkages.

The budget must be used to send out some positive signals. This whole 2G case would also have some negative impact. There will always be some doubts which investors will now have whether the courts can open and review policies which have been in place and agreed upon earlier. It would have been better if there had been proper homework so that it is not vulnerable in a court of law.

Things like Goods and Services Tax (GST) one may want to implement, but one has to be realistic. It won't happen this year. The Direct Tax Code won't happen this year. The expectations will also have to be in line with reality. But whatever is in the hands of the government directly must be done without depending on alliance partners and opposition parties. The government should now take some bold steps.

(The author is Editor-in-Chief of Entrepreneur magazine)

by Sourav Majumdar

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