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Expecting very high single digit volume growth in next fiscal: Sunil Duggal, Dabur India

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Expecting very high single digit volume growth in next fiscal: Sunil Duggal, Dabur IndiaTalking to ET Now, Sunil Duggal, CEO, Dabur India, says considers consumer healthcare as a long-term driver of growth and profitability. This is where the infrastructure building will happen.

Edited excerpts:

Last time we spoke to you was immediately after your Q3 numbers. You were quite optimistic about the volume growth. The sense which we got from you was that the numbers were strong despite the demonetisation base adjustment. Do you think the volume growth so far in this quarter also has been decent?
We will know in the next few days how good the growth is but when I refer to the Q3 numbers, it was partially on the back of a very low base of the base quarter. We grow volumes by 13%, revenue by 17% for the domestic consumer business. Obviously, the underlying demand does not support these growths and they will moderate when the base comes into place.

What we do envisage, however, is that next year the volume growth will accelerate. We believe that the monsoon predictions look favourable and the stimulus which the government is bound to provide to the rural economy in particular will drive demand upwards. We are looking forward to if not double digit at least very high single digit volume growth in the next fiscal but the Q3 numbers were a little bit on the high side on account of the low base.

There is enough and more data point which seems to be indicating that the demand resurgence in the rural economy is making a comeback and since you are a rural facing FMCG company and the delta for a business will be more rural rather than urban are we right in assuming that the rural demand is going to surprise everyone this year?
In FY19, I do not see much rural demand happening even at the current quarter. If you take the syndicated data in terms of growth for urban and rural India for the key categories such as toothpaste and hair oil etc. it is still pretty muted, in low to mid single digits. So, there is nothing to get excited about here. But in the past, I did see a resurgence of demand and we are looking forward to hopefully double digit growth but definitely in the high single digits in the year ahead.

Let us talk about various segments. Despite a significant step from your large competition in the natural as well as Ayurvedic segment, your growth has remained extremely strong in the oral care segment. What according to you has aided this kind of growth?
Actually, the growth has been pretty secular with the exception of beverages where we have seen muted growth, especially in the context of a strong double digit growth in the past. At this point in time, it is trending in the mid single digits or mid to high single digits and that is a little bit below expectations.

I do expect, however, the beverage growth to inch up, given the hot summer and also the demand acceleration. But other than that, if you take categories such as personal care, even hair oils did extremely well last year, as did shampoos. Oral care, of course, has been doing consistently well. Healthcare brands like honey did extremely well. So, it was a pretty wide range and with the exception of beverages we did see good growth in the third quarter.

We should continue to see that growth happening of course not to the extent of the third quarter but still it is in the high single digits or mid to high single digits in the quarter or two ahead. Then of course we do believe that perhaps as early as the first quarter of next fiscal, the growth should accelerate and we should end next year on a much better note than this year.

Household insecticides is a segment which has been struggling for the last few quarters. Your peers have called that out as well. What according to you is the nature of household insecticide usage and why is there weakness in the segment?

Thee are two key drivers here. One is of course seasonality and the other one is epidemic. If you have both, then the sales grow; otherwise, the sales are muted. We do see volatility here and having said that, we are really in the personal applicative space as far as our insect repellent portfolio is concerned. It is harmless and does not have any of the negative ones which the insecticide have. We expect that this is a brand which would grow. We have just scratched the surface and we have very high hopes for brand Odomos.

What is your guidance on ad as percentage of your total sales?

That will accelerate, there is no doubts about it. Of course, we cut back on advertising in the current fiscal particularly in the early part of this year as the first half was very muted in terms of the ad spends because of the GST and demonetisation effects. The demand also was crunched quite a bit. On the back of comparatively low base this year and even of the last year, we will be growing our media spends very aggressively.

Having said that, we will probably cut back a little on consumer promotions. The overall advertisement spends would definitely grow in the strong double digit next year.

The pet themes from the market standpoint is that post GST, a lot of unorganised sales will move to the organised sector. Are there some categories where you are also experiencing this change in demand pattern where you and other listed players or organised players are gaining because unorganised players are losing market share?

A few categories, In hair oils we will see some erosion of share of the unorganised sector, but in categories let us say like shampoos or toothpaste, there is hardly any unorganised sector left. Everything has moved over to the organised sector more than a couple of years ago. So, I do not think there will be any gains on that account but categories like hair oils would stand to gain with the introduction of GST. We will benefit from that.

On the basis of what is happening to raw material prices. are you in a position to increase prices or right now you will be forced to absorb them?

I do not see any margin erosion at the gross margin level next year on account of inflation even though inflation would be much higher than what we experienced in the last couple of years. We should be able to mitigate that and I do see margins being pretty flat at the gross margin level at least in the next fiscal. So, inflation is not a big concern. We have the means and the pricing power to deal with it.

What about your international businesses? Do you see things reviving anytime in the near future?

Yes, you would see a strong revival in the margin delivery of the international business. One, the translation losses which we are experiencing on account of sharp currency devaluations will be comparatively muted in the next fiscal. That would be one huge area where the margin expansion would happen; Two, expect better management of cost in the international business given its very high growth rate in the past few years. Except for the last two years, the cost also mounted accordingly and when the deceleration happened, we had to cut cost which obviously takes a bit of time.

We are now in a situation where we have a much leaner infrastructure in the international business than ever in the past. That should also help in aiding margin recovery. Having said that, we would also be spending considerably more on advertising like in the India business because we have under invested in that area over the last year or two. But despite that, we would definitely see double digit margin expansion in the international business.

Looking two to three years forward, what is the big innovation that you are planning to do at Dabur?

There are some areas of investment in terms of infrastructure building etc. and the domestic business in consumer healthcare. It is a slow journey and so I do not think it is going to be very visible in the next year or two but it is something which we are very committed to.

We do see consumer healthcare being a long-term driver of our growth and profitability. So this is where the infrastructure building will happen, this is where you will see a lot more activity. There will be a lot more of the OTC switches happening, a lot more prescriptive support and infrastructure being built. So, a lot of things will be happening in consumer healthcare and some of the results will be visible this year and next year fiscal but even more so, we would accelerate our focus and our share of the whole portfolio towards consumer healthcare in the years ahead.



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