Salil Parekh, CEO of Infosys in conversation with Shereen Bhan on CNBC-TV18

Q: I am hearing that production levels, manufacturing is back to 90 to 100 percent of capacity, sales are picking up but it is still far from business as usual. Give me a sense of what else is yet to fall back into place both from the demand and supply side?

A: Before I answer this question, we should look back at what the scenario was. We were talking about situation where the consumption had slowed down even before COVID-19 hit us and then we saw disruptions starting to take place in the month of March in different pockets of the country and then when the national lockdown happened, the operations came to a near standstill – I come from a firm belief that the lockdown was absolutely necessary for the country.

As you would understand a supply chain works in a synchronized manner. It is not just about me being open to have our factories open and run but you need your suppliers and we have hundreds of suppliers, you need to have truckers, the logistics, you need to have your distributors and very importantly the millions of stores that we cover every month. They need to be up and about.

So, it was a gradual pick up but it probably was better than the last week of March and May was better than April. Here we are in the month of June where scenario is as you rightly articulated – we are talking about without moving up to capacities of 90-100 percent. This does not mean that we have gone back to the old mix and this also does not mean that all the stores are up and about. Right now, we are in the process of filling up the pipelines and filling up the stores, meeting the pent-up demand.

Q: What would be the key challenges at the end of June?

A: At this stage, I would say that there are still about 15-20 percent of the stores, which are closed. 15-20 percent of the stores being closed does not necessarily mean that the demand has disappeared.

Second important bit is we still don’t have all the workers, all the salesmen that we need in operations and we have got massive operations as you can imagine and it is not that we have not been able to attract the people to come back. Our people have all come back but where the struggle often happens is moving people from one city to the other and wherever there are vertical lockdowns then you have the constraint of physical movement of goods also. So there are constraints but if you look at the magnitude of the crisis, I think we can definitely say that from a supply chain perspective, we are heading towards normalcy, not exactly normal but normalcy.

Q: If you were to turn the camera or the lens on to the demand side, how would you evaluate what is happening there?

A: Demand would be a bit complicated picture for the reason that right now, whatever we can produce, we are able to sell but that does not mean that it captures the underlying demand. So I would say that the September quarter would give us a very good picture of the underlying demand because by then the supply chain would have normalized and we will start seeing what is happening to the underlying demand.

Having said that, there are certain trends, which are becoming very discernible – home cocooning so obvious, we are sitting at home, heightened need for hygiene, for cleaning, also the consciousness for better nutrition, for boosting your immunity.

Q: There has been the strategy of premiumization that HUL has adopted, given today we are dealing with a whole mass of people who are moving up the consumption ladder actually getting moved off it or quite rudely and they have received a rude shock. What does that do to your strategy of premiumization?

A: Premiumization as a secular trend will remain so long as the country keeps progressing. India is not a homogenous entity. So you always have to look at India by de-averaging.

There will be many people whose consumption of FMCG products would be having a very small share of their wallet. So, they would always keep buying the products which they are used to, the brands they are most comfortable with and many of those brands would serve their higher ordinance.

There would be some people who would of course look at unit outlay much more closely now and might want to very importantly reduce their outlay per shopping trip, or in some instances they would want to come down to a brand which is much cheaper. But we have to understand that it is not price alone. I think what is most important is the price value equation — at what price the consumer perceives the value and he would still go for it.

For example, if you take Surf Excel as a brand, absolutely stunning brand, which has been doing so well for the country and for the company, and then you have made it accessible to the masses at Rs 10 price point. So, even when times are tough, people would believe that let me go for a superior brand because of its credentials, because of its quality, and because what the brand stands for. So, I think price value becomes very critical.

Having said that, when I talk about straddling the price benefit pyramid, if there are people who have lost their jobs and now they have become very circumspect in terms of spending their money, we have brands at lower price points where we make it accessible, great quality brands accessible to them at those price points.

During tough times we start monitoring the volume shares very closely, not just the value share because we want to have the consumers with us, we want them to use the repertoire of brands that we provide and so we monitor not just the value share, but the volume share very closely.

Q: We are obviously focused on personal care, hygiene products in the aftermath or during COVID-19 and this experience of this pandemic. What about all the other categories, I mean look at your beauty care products, food, beverages, and even your new acquisitions which you have merged successfully in the past couple of months and that is Horlicks and Boost?

A: I am not worried about the demand for coffee and tea. It has remained very robust. Then you come to Health Food Drinks (HFD) and I am so pleased that we have been able to acquire these great brands, absolutely stunning brands. You look at them from any angle and they would feature in the top brands in the country.

So, the first thing what our marketers and our R&D team did together is come out with an innovation on Horlicks which boosts the immunity by incorporating added zinc. There have been very clear trials have been done to prove that with added zinc your immunity goes up. Now, we came out with that innovation and the first 150,000 packs, we gave it to the healthcare workers because we believe they needed it most. Similarly, if you look at it when people are home, the consumption of whether it is Knorr Soup or whether it is Kissan Ketchup — that has been very robust.

Where we have been hit when it comes to food and refreshment is we used to a fruit solution business catering to the restaurants; that has taken a knocking for logical reasons, then ice cream. Initially the ice cream got hit massively and the problem was with accessibility because we need a cold-chain. When we went in for a lockdown, it was very difficult to ensure that we make ice cream available in all the stores where the freezers are there. But slowly that is picking up and people have also realized that you need a dose of happiness and what better than a small indulgence, having a wonderful Cornetto or a Magnum and feeling good about life. So, we are clearly seeing a pick up happening even in categories like ice cream.

Then it comes to our beauty and personal care category, our skin care, hair care, Lakme category – now I come from a school of thought that there is no one in the world who doesn’t want to look good and feel good. Initially, of course the categories took a hit because the products were not available and they were not categorized as within the definition of essentials. But I feel as things open up, as people have access to these categories and then again you come back to what we call very famously as the lipstick effect, small indulgences.

Q: Where do you see the economic recovery coming in from? I have heard you speak about the fact that you think a V-shaped recovery is possible, you haven’t ruled it out? You have also caveated that by saying that you are an optimistic person, where are you seeing it now and do you see the rural economy lead that growth like other companies are saying?

A: If anyone puts a definite that this is what is going to be the GDP growth rate of the country, then it is basically bullshitting because things are so different, there are so many variables. It is what is going to be the trajectory of the virus, what is going to be the result of the containment efforts, what is going to be the result of the government’s stimulus package and what is going to happen to the external trade. So there are many variables, so it is very difficult at this stage to put a finger on as to what would be the precise and even in the best of the times GDP estimates are very difficult to really put a precise number to that.

If we look at the different scenarios, and factor in what the government has done, the first thing I think the government did which I would again endorse is they looked at the marginal section of the population. They said that we need to ensure that we provide food, we need to ensure that we have the direct transfer of money, and we need to ensure that no one goes hungry in the country. So from that lens, I would certainly believe that the steps that the government has taken in the first round of the stimulus were absolutely the steps in the right direction.

Now similarly, they have also looked at it from a lens of the employment work scheme, the MGNREGA scheme, they have also looked at it by enhancing the minimum support price (MSP). So these are the right steps because it is the primary duty of the government to look after the most marginal section of the population.

Then when you look at it from another lens that providing collateral free automatic loans to MSMEs, setting up liquidity facilities, providing partial credit guarantees, again we have millions of MSMEs and they would be going through a very tough time from access to capital, from liquidity perspective. This is again right and also in many ways the government was planning to do by putting in more liquidity to reduce the risk aversion in the system so absolutely the right thing. But most of these were I would say as the supply led stimulus and supply led stimulus would have, it would percolate or it would have a trickle-down effect on demand.