The company expects potential impact of 150-200 basis points (bps) on sales due to inventory correction in the second and third quarters of the year.
The Chief Financial Officer Ramanpreet Sohi pointed out the ongoing shift from a super stockist distributor model to a direct distributor model, a bulk of which will happen in the two upcoming quarters.
The company reported a 63% year-on-year (YoY) increase in consolidated net profit, reaching ₹40 crore for the quarter ended June, up from ₹25 crore in the same period last year.
According to market research and data analytics firm Nielsen, Mamaearth has become one of the fastest-growing brands in key categories such as face wash and shampoo in the offline channel and has now secured its position as the fourth-largest face wash brand in the modern trade.
The current market capitalisation of the company is ₹14,725.55 crore.
This is the verbatim transcript of the interview.
Q: The first quarter was good, no two ways about it -19% revenue growth led by 25% volume growth as well. One of the comments in your PowerPoint presentation, when it came to the revamp of distribution, has the Street a little worried – in terms of inventory offsets that you are likely to do for the distribution revamp, what could the potential impact in the near term be as a proportion of your sales?
A: We have had good first quarter numbers and as part of our annual sort of charter, we’ve set on a project where we are transitioning our distribution from a super stockist distributor model to a direct distributor model. In the process, we’ve completed some part of the transition, but the majority of the transition is going to happen over this quarter and in the next quarter.
Hence, as we sort of transition and take out a layer of distribution, which is super stockist, we are accelerating the transition. Hence there is a likely impact of about 150 to 200 bps from an annual delivery perspective.
Q: What does that do to your annual guidance of 20% revenue growth with 150 bps margin improvement? Do you hold on to that? And is there an upside risk to this inventory correction that you are doing in the market?
A: We are very clear that we are accelerating this transition, and we will do this all in a single quarter. Hence, in the quarter that we do this, we will see a one-off exception from the delivery of a top-line perspective and some impact on the bottom line as well.
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Having said that, for the rest of the quarters in the year, we are likely to go back to the guided strong growth that we’ve been delivering all through last year and in the first quarter, and also continue our margin uptrend in terms of the scale efficiencies and the leverage that we have been seeing.
So barring one quarter where we are trying to accelerate and be ready and unlock a long-term sustainable general trade transition potential for us, we will go back to our normal strong growth on the top line and improving bottom line margins as well.
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