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00:00Harley products who's now joining us on the GST rate rationalization.
00:04Hi, Mr. Shah. Thank you so much for taking the time out and joining us.
00:07Mr. Shah, with GST rate rationalization on chocolates, biscuits, cereal flakes, and numkeens from your company,
00:14it has reduced sharply. How do you plan to adjust the retail pricing or the grammage?
00:23Well, so entire transition would happen into two phases.
00:25The first phase would be where you will see immediate price reduction on all packs, irrespective of the price point.
00:34Even on the smaller price points, you will see a price reduction.
00:38That's primarily, you know, to ensure that whatever wrapper you had is consumed.
00:45Typically, when you talk about FMCG companies, large FMCG companies, they work on a lead time of about one and a half, two months.
00:52So, you know, as we said today, towards the end of September, our wrapper planning would have happened for almost about, you know, October, November kind, mid-November, November kinds.
01:03So, to exhaust that wrapper, what would happen is you will see inkjet printing of revised MRPs happening on the same old packs.
01:12You will be seeing two, two MRPs.
01:14One MRP would be the old MRP and then a revised MRP would be there on it.
01:17And over a period of time, as the wrapper which is lying with the companies get exhausted, you will see some sort of adjustment happening.
01:26Either, you know, you would see continuous, you know, continuing of revised rates or in smaller packs where price points are important like 5 rupees and 10 rupees,
01:37you will see increase in weight of the packet so as to adjust the MRP per kg.
01:47The MRP per kg would be, you know, adjusted in a way where you are passing or the companies are passing the entire GST benefit that they have received to the consumers.
01:56All right. Hi, Mr. Shah, this is Kanishka also joining in.
02:03Since we are talking of, you know, different product categories, given chocolates and biscuits, they are highly competitive categories.
02:10So, do you see GST cards driving down industry pricing and intensifying competition instead?
02:14Well, driving the demand, definitely, I think it's a great move by the government of India.
02:21I think, you know, this would spur the demand.
02:26We were seeing a good growth coming in from urban and, you know, rural markets.
02:32This is going to further accelerate the growth.
02:35So, we are expecting a good year, add to it, you know, good monsoons.
02:39All those things put together, we are looking at, you know, very good growth and demand coming in the coming year.
02:46As far as competition is concerned, I think competition is welcome.
02:49I think when we talk about most foods category in terms of penetration, we are still not having, you know, the kind of penetrations which Western countries have as far as packaged food is concerned.
03:01So, there is a long way to go and there is space for, you know, multiple players in these categories.
03:06So, while there would be more players coming in, definitely, but I think, you know, the absolute demand increase would take care of the additional players who are coming in.
03:18And there would be room for growth for almost all the players.
03:22Right.
03:23Also, tell us, you know, how will the GST reduction impact your input costs and sourcing strategy as well?
03:30Well, especially for cacao, sugar and cereal-based ingredients, will this ease the margin pressure in chocolates and confectionery and the raw material inflation that has been challenging for you?
03:44So, one thing we have to be very clear about is that, you know, this is not going to have any impact on margins, either positive or negative.
03:50Because whatever reduction in GST is happening, you are going to pass it on to the consumers.
03:54Now, there might be reduction in, you know, inputs because of reduction in GST.
04:00But that's something that, you know, earlier with 18% GST, that was an ITC that was available to you, input text credit that was available to you.
04:08So, now that input text credit would be available against 5%, while, you know, the input, the GST on inputs have been reduced, even the GST on output, which is, you know, your selling price has reduced.
04:21So, ideally, you know, it would subsume or it would, you know, absorb whatever the, you know, reduction in GST that's happened at the input level.
04:34So, net-net, there's not going to be any benefit or gain to any of the players as a result of that.
04:39Ideally, you know, what would happen is there would be growth in volumes.
04:43And as a result of that growth in volumes, whatever little economies of scale that you can have or whatever, you know, incremental sales that you have and absolute profits as a result of that, you may make a little more money.
04:55But otherwise, in terms of margins, I don't think it's going to be margin accretive.
04:58Okay, so that's about cost.
05:04But, you know, talking volumes, like you mentioned, now, Parley already has very deep penetration within the flagship biscuits.
05:11Now, do you expect this GST cut to lift volume growth materially?
05:14Possible to quantify that for us?
05:17Yeah, definitely.
05:18So, I think this is, as I shared earlier, it's going to spoil demand and we are going to see, you know, more consumption coming in as a result of reduced prices.
05:26We are expecting, you know, double-digit growth in the coming year for the balance part of the year and the next year.
05:35We would see at least about 12 to 13% growth coming in as a result of reduction in GST.
05:43All right.
05:44Thank you so much, sir, for joining us.
05:47You know, with that, it's time for us to slip into a short break.
05:49Don't go anywhere.
05:50We'll keep getting you more updates on this big GST takeoff.
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