Just a quarter ago, hit by the aftermath of demonetisation and destocking among its channel partners on account of the Goods and Services Tax (GST), Emami suffered a 98 per cent dip in its net profit while its revenue toppled by 16 per cent in the first quarter of the current fiscal year. But in the second quarter of the current fiscal year, in line with the trend in the FMCG sector, the company bounced back, posting a 49 per cent surge in its net profit, backed by a 10 per cent volume and seven per cent increase in its earnings.
The key component in the company's strategy, which started rolling three quarters back, has started to pay off now as its dependence on the wholesale channel decreased from the former 53 per cent to 42 per cent while its direct sales outlets went up to touch 800,000 outlets from the former count of 640,000 outlets.
"As was decided on our strategy, we laid emphasis on reducing the wholesale channels and push more into the rural markets with direct presence. Along with increased focus on our power brands, we were able to make a turnaround," Mohan Goenka, the company's director told Business Standard.
Emami Ltd's heavy dependence on the wholesale channel earlier, proved to be a bane as 53 per cent of its channel base resorted to massive destocking and the announcement of the GST again made matters worse for the company. As sales stagnated, the company first tried to negotiate on its cost of operation to maintain margins but eventually had to give up posting a hefty dip in profitability.
The company posted flat revenue and profitability in Q3 of the 2016-17 fiscal period at Rs 726 crore and Rs 134.34 crore respectively on a year-on-year comparison. However, Q4 2016-17 onwards, revenue gradually went down by 4.3 per cent in Q4 and further by 16 per cent in Q1 of the current fiscal year.
It was during this period of crisis that Emami Ltd felt it needed to reorganise its sales base and restructure the channel base urgently. This very distribution overhaul strategy primarily worked three wonders - first, it provided better business possibilities; second, it helped in cost curtailment as wholesale channel is driven by sales target schemes which can be lessened and thirdly; push the less demanded brands through a direct reach.
But most importantly, it buffered the risks of destocking and restocking to a large extent.
"There has been good recovery in the northern and eastern markets, particularly Uttar Pradesh, Rajasthan and Bihar, which together accounts for 55-60 per cent of our sales. Rural markets are on the verge of recovery and restocking is taking place", Goenka said.
Predicting a recovery in Q2 of the 2017-18 fiscal year, the company had also upped its focus on marketing initiatives targeting the power brand segment, although its spend remained flat at nearly Rs 100 crore and launched three new products.
Goenka said for the rest of the year, the company's strategy will be to keep its wholesale channel exposure contained, increase focus on rural sales and launch new products although the focus will remain on the power brands, which accounts for more than 75 per cent of the total sales. These brands are BoroPlus, Navratna, Zandu, Fair and Handsome and Kesh King.
"Sentiments are improving and I think that the growth momentum will be sustained in the coming quarters. The worst is almost over", he said.
It's corrections in international sales - which accounts for 14 per cent of its topline of Rs 2533 crore - has also started paying off as it grew by 22 per cent in the Q2 period of the 2017-18 fiscal year against a dip of 19 per cent in the Q1 period of the ongoing fiscal year.
In a conscious effort, the company reduced its focus on the middle-east Asian region, which is currently under stress, and upped its efforts in the south-east Asian region, particularly Bangladesh, which accounts for nearly 35 per cent of the total international sales.
The 7,000 tonnes per annum Bangladesh unit, which the company set up in December 2012 at an estimated investment of Rs 21 crore, caters to 25 per cent of the volume for international business and 80 per cent of its market in that country. Emami Ltd expects to maintain a 38-40 per cent growth pace in Bangladesh in the near term.