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Jan 30, 2013, 10.31 AM IST | Source: CNBC-TV18

Ad spends may moderate by 50-100 bps in Q4: Dabur

In an interview to CNBC-TV18, Sunil Duggal, CEO, Dabur India said although the headline numbers looked a little lower, the domestic consumer business which is the chief generator of profits is growing at 14.5 percent, with almost double-digit volume growth.

Overall, very strong delivery by home and personal care. Healthcare has been much more moderate at around 10 percent but overall foods, and home and personal care have been the key drivers of growth

Sunil Duggal

CEO

Dabur

Fast moving consumer goods major (FMCG) Dabur India reported mixed results for the third quarter. Consolidated net profit was up slightly above street expectations at 22 percent year-on-year to Rs 211 crore. However, consolidated net sales growth of 12 percent at Rs 1,631 crore, missed analysts’ estimates in Oct-Dec.

In an interview to CNBC-TV18, Sunil Duggal, CEO, Dabur India said although the headline numbers looked a little lower, the domestic consumer business which is the chief generator of profits is growing at 14.5 percent, with almost double-digit volume growth.

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“Overall, it has been a strong performance at the topline and even better on the margin with EBITDA growing at 20 percent and profit at around 22 percent,” he added.

The key drivers of growth, he said have been foods, and home and personal care (HPC), whereas the only weak spot has been domestic US business, which underperformed.

We may moderate ad spends for the coming quarter by 50-100 basis points, he asserted.

Below is the edited transcript of his interview on CNBC-TV18

Q: Your sales growth was at 12 percent. Can you break it up between volume and price and whether it’s a bit lower than your expectations bit more sluggish?

A: The headline numbers do look little lower at first but if you drill down, you will find that the domestic consumer business is growing at 14.5 percent and that is really the chief generator of profitability. This 14.5 percent can be broken up into 9.5 percent volume and 5 percent price, which again is a healthy sign. So the volume growth remains close to double digit which is pretty robust.

There have been some pressures on our commodity export business which has dragged down topline but that is really not strategic. So we don’t worry too much about that. Overall, it has been a strong performance at the topline and even better so as far as the margins are concerned with EBITDA growing at 20 percent and profit at around 22 percent.

Q: In your operational performance, your ad spends continue to be much higher than what you guided for in the past. What kind of a run rate do you hope to maintain in terms of ad spends and how much do you think you could bring it down to?

A: We would probably moderate ad spends a little bit as compared to what you have seen in this quarter. I don’t think there will be any major reduction but there will be some moderation. Maybe we will try to manage with 50-100 basis points lower than what we have done this quarter.

Lot of our launches are now coming through and while they would be pretty expensive in terms of media spends, we do believe that we have invested sufficiently over the last few quarters in existing brands so we can moderate spends a little bit.

We will try to moderate spends here and let the additional profits flow through. But I wouldn’t really bet on it, let’s see how the competitive environment pans out.

Q: This 9.5 percent volume growth - which categories are the leaders and which are the laggards in that and do you expect to maintain this kind of near double digit volume growth or some moderation to creep in, in the next two quarters?

A: We do expect volume growth to remain in the 8-12 percent band and that is what we guided earlier and that remains. We will try to cross double digits but it is never easy going. Even the current volume growths of around 10 percent, we believe are pretty satisfactory.

The key drivers of growth this quarter at least has been foods as always. Foods, in last three-four quarters have been extremely bullish in terms of growth. HPC, which was perhaps little bit of a drag in last couple of quarters, has recovered very strongly. We have seen 30 percent growth in shampoos, around 15 percent in perfumes and hair oils, another 13-14 percent in oral care.

So, overall very strong delivery by home and personal care, the homecare part has grown at around 30 percent. Healthcare has been much more moderate at around 10 percent but overall foods, and home and personal care have been the key drivers of growth.

Q: You spoke about your domestic consumer business. What about exports because the argument there is that exports are growing but it is on a really low base. Have you been able to take any kind of price hikes in the export business and what kind of volume growth do you think you can sustain?

A: We do not do too many exports of branded products but we do exports on commodities, which was significantly lower this quarter which contributed to the short fall in our topline. Our overseas business is basically manufactured in the countries in which we do business in. The margin expansion there was actually quite good particularly in our organic business which is hubbed in the Middle East and North Africa (MENA) region. We didn’t take any price increases there because the commodity environment was very soft, so we didn’t need to take any increases. It was almost entirely volume driven and we saw very good growth there as well as huge amount of margin expansion.

The acquired businesses were a mixed bag, the businesses in Turkey, which we acquired a couple of years ago did well. It has turned around, showing 20 percent odd topline growth and the margins are also creeping up. The only point of pressure remains the domestic US business which was significantly underperforming. There have been major changes in terms of brand architecture, in terms of distribution of arrangements, management changes, etc which has kept performance for this year pretty subdued. We do hope to regain momentum there by early part of next year. So that has really been the only weak spot.

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