If you're a large company in a country whose economy is coming to a grinding halt, you don't generally grow at 17%. Well, someone forgot to tell Amul that.
In today's post, we look at the macro context and the issues that other high-quality firms have been facing, look at the drivers Amul has used to get this phenomenal growth and see how the lockdown will begin to have an impact on Amul as well.
The impact on India consumer
The macro-economic slowdown in India has hit some of the most well-run companies, with the coronavirus coming as an added shock. The sector was expected to grow at 9% before the start of the virus, and will likely close the year slightly lower. While the well-run firms have reported a stronger volume growth driven by stronger growth in Tier 2 cities and India's hinterlands, the growth in volume has come at a cost of slashed prices.
The coronavirus issue has only increased the problems for the industry both on the operations and supply chain side. Godrej Consumer, one of the leading FMCG player in India, is reportedly operating at ~30% capacity with less than ~25% of its distributors in action. This issue will have already made its mark felt in Q4, and is likely to persist well into Q1.
So how did Amul manage this feat?
Geographic growth has been central to the firm's growth. This infact, has been a recurring theme of most of the top well-run companies who are increasingly expanding to "Middle India" in order to fuel their growth in a muted demand environment. The firm has also focussed on the premiumization theme, selling premium milk derivatives instead of pure milk, which helps the firm get the dual advantage of higher revenue (and margins) along with better utilization of its excess milk.
What is even more impressive is that Amul has managed to grow at pretty much the same rate for the last decade! And the ambitions of the firm don't seem to be slowing anytime soon, which is eyeing the 1 lakh crore mark in the near future!
But the giant will take a hit too
Covid 19, however, spares few. With most of India's population indoors due to the lockdown, icecreams, which see their peak sales in summer months will take a hit affecting the firm's financials in the next fiscal. Even in this year, the firm reports a 1-1.5% hit on topline due to the coronavirus issue. In the period of the lockdown, the firm has seen a 30% hit on demand! The firm has however managed to steer clear of supply shocks and should be in a position to make a good recovery once things come back to normal.
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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P.