To drive their growth, major global companies are increasingly investing in new-age startups. Emami Ltd, a prominent FMCG company in India, is a prime example of this trend. With an anticipated growth rate of 8-10% in FY24, Emami credits its investments in startups and macroeconomic support as key factors contributing to this positive outlook.
Domestic Business Growth and Gross Margin Expansion
Emami Ltd, a leading FMCG company in India, anticipates a growth rate of 8-10% in the fiscal year 2023-24. The company experienced a 5% growth in its domestic business during the fourth quarter of FY-23. This positive momentum is attributed to a combination of macroeconomic support and internal interventions, including investments in new age start-ups like The Man Company and Brillare.
Furthermore, Emami Ltd aims to achieve a close to 150 basis point expansion in gross margins for FY-24. In the fourth quarter of FY-23, the company witnessed a 60-basis point expansion, resulting in gross margins of 63.1%.
Positive Outlook Despite Challenges
Mohan Goenka, Vice Chairman of Emami Ltd, acknowledged that the summer season has been relatively weak. However, the company has observed promising developments in rural markets. If this trend persists, they expect the domestic business to grow by 8-10%. Goenka also highlighted the eased pressure on input costs, which allows for margin expansion. Consequently, the company plans to allocate more funds for advertising across various product categories.
Mixed-Demand Environment and External Factors
Emami Ltd operates in a mixed-demand environment, with discretionary categories like personal care being subdued. Consumers, particularly in rural areas, are reducing nonessential expenses. In FY-23, rural inflation reached 6.8%, the highest in the past nine years, surpassing urban inflation for the first time since FY-18. Moreover, excessive rainfall in March adversely impacted the demand for summer products.
Despite these challenges, Goenka remains optimistic about the industry's prospects. Declining commodity prices, a favorable monsoon, higher crop realization, and continued government interventions are expected to contribute to a promising future.
Product Portfolio Innovation and Distribution Network Expansion
Emami Ltd's commitment to innovation in its product portfolio, especially through digital-first launches, has yielded positive results. The company has successfully expanded its distribution network, focusing on direct-to-consumer (D2C) initiatives. In FY-23, Emami launched approximately 20 products, with the majority being digital first launches on the D2C portal Zandu Care. These recent launches contributed over 3% to domestic sales, 7% to modern trade, and 20% to e-commerce sales. Modern trade witnessed an 18% growth, and e-commerce grew by an impressive 64% in Q4, increasing their significance to more than 20% of domestic sales compared to the previous year.
Expansion Programs and Future Plans
Emami Ltd continued its investments in Project Khoj, a rural expansion program. It expanded its reach to approximately 11,000 towns last year, reaching a total of around 52,000 towns and villages by the end of the financial year. The company aims to add another 8,000 towns, targeting a reach of approximately 60,000 towns and villages by the end of FY-24.
Emami Ltd's strategic investments, innovative product launches, and expansion programs position the company for continued growth in the coming fiscal year. With a positive outlook and a focus on adapting to evolving market dynamics, Emami Ltd aims to strengthen its position in the FMCG sector and deliver value to its stakeholders.