Consumption story of staples is making a comeback: AWL Agri executives

AWL Agri targets 7-8% edible oil volume growth, banks on capacity expansion and a demand recovery led by rural markets and staples consumption

AWL Agri (formerly Adani Wilmar) expects edible oil volume growth to be in the range of 7-8 per cent. Following the company's October-December quarter results, Angshu Mallick, executive deputy chairman and Shrikant Kanhere, managing director and chief executive officer, spoke to Sharleen D’Souza in an exclusive online interview. Edited excerpts:

 

How do you expect overall demand to play out?

 

Mallick: The first half of the year was bad. From September-end onwards, the GST cut came into play and in October, we entered the festive season and consumers purchased ‘namkeens’ and personal care items or items where there was a GST cut and this played out till November. Since November, we have witnessed an uptick in staples consumption. In December, we witnessed a pick-up in volumes for edible oils, which is why you see a growth in volumes. January-March period also looks strong, as we have already witnessed strong consumption in January. If you look at the trend, it looks like the consumption story of staples is coming back, and rural has started supporting it. October onward, we have seen that rural is doing better than urban. Smaller towns are doing better than bigger towns.

 

How do you expect margins to play out from here?

 

Kanhere: On the margins, we are range-bound this year. If you look at our Q1, Q2 and Q3 numbers, Q2 was better than Q1, Q3 was better than Q2. Last year was exceptional therefore you will always see a margin drop as compared to the last year. I don't think we should be comparing that. Ebitda in the range of ₹3,600 per tonne is something which we will consistently keep delivering. In Q4, we should see reasonably okay kind of volume growth. We can expect volume growth led absolute margin growth in the future.

 

Why did foods see flat volume growth in the October-December quarter?

 

Mallick: Edible oil has grown at 8 per cent that is why the overall basket is showing 3 per cent growth. As far as edible oil is concerned, we are growing higher than national average growth. In food, if you take away rice and wheat, the rest of the products are growing higher than 20 per cent. In rice as well, in basmati, we continue to grow. The non-basmati rice did not do well. Last year, we had better exports than this year and also last year saw better domestic sales. Also, food is lower, because this year we wanted to consolidate our non-basmati rice.

 

As far as wheat is concerned, honestly, what has happened is that the wheat market has been steady, unlike last year. Local players had the advantage of buying cheaper wheat from the market, processing and packing and selling branded atta. We carry wheat for 8-9 months as we need the quality to stay the same for the consumer. The competition has been very tough and hence, there was loss of some volume. New wheat will start coming in from the end of March, everyone will clear their inventories. In rice, the on-going quarter we are back in action. Food products will continue to grow and our story of growing at 15-20 per cent remains intact and we are confident we will deliver it.

 

Will you continue to see volume growth in edible oils?

 

Mallick: We should see single digit growth in the range of 7-8 per cent. That is our target. Our volumes are pretty high in a quarter. We sell over a million tonnes. When you talk of a million tonnes and you say 10 per cent higher, it is quite a big volume increase, but we are confident edible oil will grow. Food will also grow. And our oleochemical business is also growing, but it has reached that capacity, what the plant can deliver.

 

What are your expansion plans for oleochemicals and edible oils?

 

Mallick: Our capacities are running at over 80 per cent, so we need to invest. We are adding a plant in the South at Krishnapatnam. We are adding a 600 tonne sunflower refining capacity at Hazira, which will start early next year. This plant will give us huge volumes of sunflower oil, because Mumbai is the best market for sunflower oil. Currently, we only have 200 tonnes and we are putting a standalone 600 tonne plant. That is one expansion and we are also making changes to our existing plant, so we improve our capacity utilisation and productivity by changing some technology or parts.  

 

How do you expect edible oil prices to pan out?

 

Mallick: Ukraine-Russia disturbance continues. I don't know when it will come to an end, but production of sunflower seed has been lower in both countries this year. Now their harvest is in September-October and we have seen that the crop is less as a result, sunflower oil prices have remained firm. Now this will continue till March, because the next crop is coming from Argentina, which will only come in by April-May. Till March, the sunflower oil market is going to be tight. Soybean and palm oil are available and will remain range-bound. It also depends on the rupee-dollar movement. Mustard crop will come in towards the end of the month and a big crop is expected. We expect at least 10 per cent higher crop this year, so we are sure this market will be range bound. 

 

What is your distribution reach target for FY27?

 

We had said that we will try to reach a million outlets by March 27. We are at around 9.5 lakh retail outlets where we go directly and indirectly, our reach is 2.6 million outlets. Our target is to reach a million outlets by March 27. We feel that staples need visibility and availability. If you are available at the correct place nearest to the consumer, chances are that people will buy your product.