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Slowdown is relative. India’s growth is decent, says PepisiCo's India president, Ahmed El Sheik

Ahmed El Sheik’s comment on the economy comes on a day when global ratings firm Fitch cut India’s growth forecast for fiscal 2020 to 5.5% from its June projection of 6.6%. The slowdown has hurt the FMCG sector, where PepsiCo operates, as well.

, ET Bureau|
Oct 25, 2019, 08.12 AM IST
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On the issue of a likely ban on single-use plastic, the PepsiCo India chief said irrespective of the government’s decision on it, PepsiCo was going ahead with making its bottles fully recyclable.
NEW DELHI: The ongoing slowdown in India is relative and a GDP growth rate of 5.5% is very decent in comparison to the global economy, PepsiCo’s India president said on Thursday.

Ahmed El Sheik’s comment on the economy comes on a day when global ratings firm Fitch cut India’s growth forecast for fiscal 2020 to 5.5% from its June projection of 6.6%. The slowdown has hurt the FMCG sector, where PepsiCo operates, as well.

Last week, research firm Nielsen said the FMCG market posted value growth of 7.3% in the July-September quarter, compared with 16.2% a year earlier.

“If you have full category penetration and there is a slowdown, you will feel the impact. But if category penetration is very limited, there is a huge opportunity to grow and reach more consumers,” the chief of PepsiCo India Holdings said.

The company is banking on balancing its revenue and profit, but not one at the expense of the other, he told ET. “That (targeting just one area) will never be sustainable. While the company is focused on areas where we see margins, we will not ignore low unit price points.”

In 2018-19, the company posted a profit of ?36 crore on revenue of ?6,257 crore, according to its filings with the Registrar of Companies. Its normalised profit excluding one-off items grew 67% from a year earlier. Revenue was up 3.1%, compared with a decline of 7.2% the year before.

The maker of Pepsi and Mountain Dew aerated drinks, Tropicana juices and Kurkure snacks is now focused on operations predominantly on its snacks foods business, and sells concentrate to its franchise bottling partner, RJ Corp-owned Varun Beverages Ltd (VBL), besides category creation, marketing, brand building and research and development.

“We are building on a scalable model. The franchising to VBL is one of the most efficient decisions we have taken. There was a lot of duplication happening in the system; now we are one system; one model, which creates efficiencies to leverage scale, profitability and operational productivity,” the India chief said.

Most markets in PepsiCo’s Asian and Middle East regions are now franchised, in line with its focus to operate asset-light businesses across world markets.

Earlier this year, Pepsi-Co had divested its bottling operations in the West and South of the country to VBL in a .?1,850 crore deal that also involved the transfer of 1,900 employees. The results include the performance of the bottling, sales and distribution operations that were later transferred to VBL.

The company attributed the profit growth to better distribution, expansion in core areas and gains in ecommerce, besides capacity utilisation in the foods business which it said helped leverage cost lines. In 2017-18, it had reported a net profit of ?190 crore, the first after a gap of seven years.

With core soft drinks showing soft consumption on health concerns, PepsiCo has been hedging risks by launching juices, juice drinks and sports drinks.

On the issue of a likely ban on single-use plastic, the PepsiCo India chief said irrespective of the government’s decision on it, PepsiCo was going ahead with making its bottles fully recyclable.

“The goal between the government and us is the same. Plastic is not an issue if it is recycled 100%. Our recycling efforts are not going to be based on a technical definition,” he said.
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