Emami Ltd

SUSHIL GOENKA, MANAGING DIRECTOR OF EMAMI LIMITED, EXPLAINS WHY

Q: Were you pleased with the way the Company performed in 2020-21?

A: I am pleased with the way the Company performed, considering that when we entered the financial year there was complete uncertainty on when the markets would re-open, to what extent they would re-open and how consumers would respond.

When we ended the financial year under review, the country appeared to be looking out at a five-year economic growth possibility, which explains the extent of sea-change that transpired during the course of the year.

Q: What could be the reason for this sharp divergence between the first and last quarters?

A: There were a number of factors at play. While on the one hand there was definitely a decline in consumer incomes during the first lockdown quarter, there was, on the other hand, a financial saving in staying at home.

I also believe that years of thrift and saving found an expression at a critical point in the country's existence: consumers voted with their spending rather than postponing for another day.

Q: Why did this transpire?

A: Rural India was not as extensively affected by the pandemic as urban India. Rural India benefited on the back of reasonable monsoons and high minimum support prices. Besides, rural India did not suffer lockdowns or a decline in their income cycle. The result is that rural India continued to spend across staples and affordable products. Faced with inventory depletion when the companies reopened, it was a rush to play catchup to produce more to replenish what had already been sold, kick-starting a virtuous cycle of increasing production and consumption.

Q: How did Emami respond in this growth environment?

A: I am pleased to communicate that Emami returned to attractive profitable growth; EBIDTA margin grew 460 bps, RoCE strengthened 1,280 bps and the Company finished the year under review witRs 6 times higher cash on its books despite rewarding shareholders with dividends amounting to RS 356 crore and a share buyback worth RS 221 crore.

Q: What are some of the initiatives that contributed handsomely to the Company's outperformance?

A: Before one explains the various initiatives that contributed to the outperformance, it would be relevant to communicate an over-arching message: Emami could have played defensively in a transforming marketplace; it responded by playing positively and aggressively – and that made all the difference. The Company had been engaged in addressing a range of challenges in the last few years that found collective expression during the first half of the last financial year. These challenges were related to sales and distribution on the one hand and growth of brands on the other (Zandu Pancharishta, Kesh King, Fair and Handsome). As an analogy, I would state that at a time when batsmen would have been concerned about protecting their wicket on a turning track, Emami selected to bat its way out of the challenge on the front foot. Let me provide a simple instance. Most companies in Emami's place would have deferred the launches of new products at a time of sectorial flux; Emami trusted its conviction and went ahead with more than 40 new launches in the domestic market. Most companies in Emami's place would have deferred spending on brand re-positioning and relaunch; Emami felt that a weak consumption market, when spending was being deferred by most players, was the best time to capture consumer attention. This contrarian streak, coupled with boldness, madeallthedifference.

Q: What else contributed to the Company's sharp performance improvement?

A: The second point that one needs to highlight is that Emami addressed a challenging market place by not playing for incremental gains; it responded with a number of calculated concurrent initiatives – its decision to focus on Power Brands as opposed to spreading itself thin across its vast portfolio; its commitment to broad-base its distribution presence beyond wholesalers and towards e-commerce, modern trade format and direct distribution; its commitment to strengthen its international business; its commitment to moderate costs, reducing its break-even point and strengthening any-market competitiveness. The fact that Emami could engage in these concurrent initiatives, pull them off and create a new foundation of sustainable growth, is a validation of our managerial capabilities, knowledge bandwidth, courage and strategic vision.

Q: Emami faced a priority in reviving growth in some of its brands like Kesh King, Zandu Healthcare Range and Fair and Handsome.

A: The message that I wish to communicate is that even as the sector was faced with slowdown and pandemic challenges, there were teams focused on repositioning specific brand segments with the objective of reviving growth.

Take the instance of Kesh King. The Company focused on a combination of approaches: direct to consumer delivery, while promotions highlighted its superior price-value proposition and brand positioning as India's No.1 Hairfall Expert. The result is that Kesh King Oil returned to growth, growing by 15% over 2019-20. Turn to the Zandu Healthcare range, where the Company strengthened processes, decision-making and time-to-market for all new product launches. Besides, the Company widened the rural and urban coverage for ayurveda products. The Company collated feedback from the medical fraternity and retailers leading to responsible product development. The result was an appreciable improvement in the offtake of this segment during the year under review. Come to the performance of Fair and Handsome where the consumption of men's fairness creams and face washes declined due to a decline in discretionary spends. Emami could have waited for the market sentiment to change; instead, the Company rebranded Fair and Handsome ‘Fairness Cream' and ‘Fairness Facewash' as ‘Instant Radiance Cream' and ‘Instant Radiance Facewash' respectively. Besides, the Company engaged Salman Khan and launched a new TV campaign. The proactive counter-response resulted in the Fair and Handsome portfolio growing 18% in the second half of the year following the relaunch.

Q. How did the Company's International business perform?

A. Here too, a distinctive response became visible. Even as the COVID-19 pandemic translated into a global economic slowdown and trade disruption, which initially affected

Emami's international business, the Company responded with speed: it extended its international brand Creme 21 into skin care (for all ages), graduating this acquired brand into a multi-category platform, widened its ASEAN footprint and empowered teams across various global markets. The result is that the Company's international revenue grew 12% by value over 2019-20.

Q: How does Emami intend to grow from this point onwards?

A: Emami will do what it has always done: keep pushing the frontier, keep daring the odds, keep thinking contrarian and keep reinventing the conventional. This means that new categories are likely to be explored, new products launched, old products relaunched, brand extensions made, new territories entered, fresh acquisitions made, new areas for costs to be moderated in – everything that one will associate with a company that intends to grow faster.

Q: What provides you with the optimism that this is likely and possible?

A: What we are seeing is a transforming India and world: there is a greater propensity to consume natural and herbal products, which is something that we have been doing for nearly four decades; more than 80% of Emami's products today have an ayurvedic base.

What we are seeing is a bigger willingness to buy online or through modern trade formats, which is where Emami is proceeding. What we are seeing in a greater focus on digitalisation, which is why we have been investing and will continue to invest in the future in digital transformation. What we are seeing is a greater consumer focus on the Personal and Home Hygiene segments following the pandemic, spaces where we forayed into. The result is that Emami is in the midst of increased sectorial relevance, the full benefit of which will play out across the foreseeable future.

Q: If you had to leave one principal message with shareholders, what would it be?

A: This is a new digitalised Emami that is moving with considerable agility. Most initiatives – whether in terms of cost management, product launches and promotions – are being increasingly digitalised. This has enhanced organisational agility, moderated costs and enhanced our consumer engagement, especially with millennials. We are optimistic that this re-interpretation of Emami is broadening the foundation of appeal across a younger spending population, which will generate improved prospects across the foreseeable future.