Ghazal Alagh says: “We are a growth-oriented company. We see so much opportunity in building the right kind of products for consumers. And if you do that, consumers reward you. And we have continued doing that in this year, the first quarter as well, where we grew 40% plus. We will continue to strive to grow ahead of industry in the future as well.”
In general, let us talk about the market trends. How is the demand trend in FMCG companies, the beauty and personal care segment? Where do you see that growth strategy coming in for the company?
Ghazal Alagh: First of all, Honasa Consumer Limited, is not private anymore. That is what we are starting our day with. Super excited, super happy, a lot of emotions. We have finally done it. As far as the company and the space is concerned, beauty and personal care is a segment that we are very, very excited about. That is what Honasa plans to cater to in the longer run as well. We believe that this is the segment which is growing really fast, largely driven by more and more women joining the workforce as a trend and income levels going up.
These are the two factors which we believe will continue to grow this segment even going forward. We are placing our bet on ‘masstige’ as a segment because we believe that that is going to grow faster than the mass segment and we are very excited to start building for the future.
Right now, CAGR growth is going to be much higher because the base is lower as well. But at some point of time, where do you see yourself stabilizing? Do you still expect to grow better than the industry? Is that something we could expect?
Varun Alagh: Of course. Please expect that from us. Hold us to that because we are a growth oriented company. We see so much opportunity in building the right kind of products for consumers. And if you do that, consumers reward you. And we have continued doing that in this year, the first quarter as well, where we grew 40% plus. We will continue to strive to grow ahead of industry in the future as well.
How is Q2 looking like? Is it looking similar to Q1? Could we expect that?
Varun Alagh: It is very good. Better than industry for sure.
The festive season gives a lot of pickup in terms of everyone shopping more. Is that a trend that you normally see in your business as well, that festive season or maybe a Q3, Q4 would be seeing a higher pickup given the wedding season comes in as well?
Varun Alagh: In our case, it does have a skew for certain categories. Like, for example, some of the skin care categories or some of the colour care categories do get some bump up. But overall, because we are present in all categories, be it summer categories or winter or festive categories, for us, H1 and H2 are largely in a similar space. There is not much seasonality in the business.
In terms of the fabulous gross margins that the company has, it is much better than what I have seen in the FMCG industry. Are these margins sustainable given that there are a lot of inflationary trends that we have seen in the last couple of years because of Covid as well?
Ghazal Alagh: I think a large part of our growth is volume driven. We have seen these gross margins when we started out as well. We have gotten better in the last three years. And yes, these are sustainable levels of gross margins. We will continue to see improvement in them. But yes, I do not think that there is going to be an up and down when it comes to gross margins.
We have a lot of contract manufacturers as well. When you are having contracts with them, given this inflationary, deflationary phase that you see, do our contract terms also keep changing in terms of pricing or, how does that work out for the company?
Ghazal Alagh: We do see inflationary pressures. We have seen it in the past. That said, we have not needed to take a price hike up. We have taken it in just 2% of our portfolio. That is it. But other than that, because we have high gross margins, we are also able to cater to some of that. Like, we work with our partners, we have very strong relationships when we started out versus today our scale has increased considerably. So our terms with them also become better. And that is something that we believe is going to happen, continue to happen in future as well.
At some point of time, would you give up some bit of gross margins and look at growth? Is that something as a strategy you would look at or would margins still be at this level and continue to focus on growth as well?
Varun Alagh: From a gross margin perspective, this is the level at which we have operated in the past and our attempt would be to continue to operate at that level. Growth at these margins is possible. We have demonstrated that in the past and we will continue to demonstrate that in the future.
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