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Apr 16, 2012, 02.38 PM IST
Despite the unabated pressure on margins, CEO of Dabur India Sunil Duggal tells CNBC-TV18 that he doesn’t expect margins to fall from here on.
Dabur recently crossed the USD 1 billion turnover mark, which indicates their good topline delivery, on both volume and pricing. "We do believe that the topline is critically important to deliver long term sustainable profitability and that’s where we have scored," said Duggal.
Going forward, Dabur has new launches planned in healthcare and F&B segment. "This is because we expect to see robust volume growth despite the economic slowdown," explained Duggal.
Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.
Q: Just give a sense of how exactly has FY12 done in terms of key parameters such as volume, pricing, margins and what can we extrapolate it into FY13 as guidance?
A: Thank you very much for us achieving this milestone. We are very proud of it and it was done sometime in the month of March. We would have done it much earlier had not the rupee fallen so sharply, but never the less we are one of the few companies to have achieved this milestone and we are proud of it.
The year has been a mixed one; it’s been pretty good in terms of our topline delivery. The numbers have been strong both in terms of volume as well as the pricing component. On the other hand, the downside has been that the margin pressures have continued unabated. Inflation as well as the weak rupee is fueling this compression of margins and doesn’t seem to be any near term uptake in the margin profile, so it’s a mixed bag,
Overall we are pretty happy with the year which has gone by because we do believe that the topline is critically important to deliver long term sustainable profitability and that’s where we have scored.
Q: Do margins pressures atleast look like abating, even if not improving? Can we say they are at their lowest now, don’t get worse?
A: I don’t think they will get worse, the question is how long will it take for them to improve. We did expect or atleast hoped for improvement in this quarter, but that doesn’t seem to be happening. Oil prices continue to remain very high and the rupee continues to be beaten down, so no relief this quarter and it’s anybody’s guess whether there would be some relief in the next.
Having said that, I don’t think there will be any further deterioration of margins. I think we have almost kind of bottomed out unless something very dramatic happens. So the challenge would be to regain our margin profile which was much better a couple of years ago in the shortest possible period of time.
Q: What exactly is the expenditure with regards to advertising that we can expect in FY13? How much do you expect to scale it up to and what would you think would be the impact on volumes and margins?
A: I think we would be maintaining a spend in the region of 14% which should be higher than around 12.5-13% which we would have done last year. There will be definitely more investment in the business because we do expect certain amount of reduction in the rate of inflation so we will be able to fuel our advertising budgets a little bit higher.
In terms of volumes, we expect ours to be robust even though the Nielsen numbers do indicate significant slow down in the rate of growth for the industry as a whole compared to what is was a year from now. But we have done our internal distribution reorganizations and huge rural out reach programs so we are expecting our volume growth to actually be higher than what we did last year on the back of slightly lower price increases and a better distribution outreach.
Q: We are coming out of a very healthy harvest season both for kharif and rabi. So what has been the Nielsen expectation in terms of rural demand and what will you extrapolate for FY13?
A: The current Nielsen numbers do indicate significant slow down in demand compared to what it was 12 months ago. Now this could be a temporary abberation on the back of what you said good agri output. This could reverse and we could see strong volume growth re-emerging.
On the other hand there is a possibility that this would not happen in which case we would be further challenged in terms of delivering volume growth. But as far as we are concerned, we don’t see volume growth as really being a challenge, it’s really the margin which would test us much more.
Q: What is the latest you have on the radar in terms of launches? We understand your almond oil has done very well and that you’re eyeing the food category very closely?
A: A lot of new products will be on the table, I think far more than what we did last year. We will be channelizing a lot of our extra spends into new product introduction, into fueling innovation. I think there will be new products emerging from our innovation funnel in all the categories which we operate.
You mentioned hair oils and that’s one area which we are very interested in. We will be looking at the foods space a little bit more closely and even space outside the beverage which is dominant in our portfolio and also healthcare. So innovation would happen across the whole product spectrum, but perhaps more in healthcare and food and beverage than in homecare.
Q: What can we expect in terms of revenue growth in percentage terms for the domestic business as well as your international business - more emphasis on your international business as well in terms of what we can see in Africa?
A: The domestic business we are hoping will grow in the low to mid teens. I think that is a fair expectation given the constraints and terms of flattening of demand, etc. The international business would grow ahead and we are looking at the high teens or maybe into the 20s, so the blended growth would be perhaps in the mid to high teens.
This time it would be fueled more by volume and less by prices that it was last year. Last year the blend was around two-thirds price and one-third volume and this year is like it reversed, so that’s the outlook. It’s still early days but we do think it will be a satisfactory year for us.
May 21 2013, 11:05
- in MARKET OUTLOOK
May 21 2013, 11:05
- in MARKET OUTLOOK