Expect ad spends to stabilise around 12-13%: Dabur India

Consumer goods maker's second quarter consolidated net profit rose 16% year-on-year to Rs 202 crore, on the back of strong growth in personal care and foods businesses and higher other income. Its quarterly net sales rose 21% from a year ago to Rs 1,523 crore.

The company reported 9 percent volume growth in its domestic business in the second quarter and price hikes accounted for 6% of growth, he informed.

Further, Duggal expects ad-spends to stabilise at around 12-13%. "It should stabilise at around current levels or may be a tad higher. It has been a little muted in the second quarter compared to what we were in the first, largely on account of the festive season, which begins a little later," he added.

Below is an edited transcript of Sunil Duggal's interview on CNBC-TV18.

Q: How much of the increase in revenues was contributed by volume? How much by realisations or value?

A: As far as the domestic business is concerned, the composition is around 9% volume and 6% price. As far as overseas business is concerned, it is entirely volume, there has been very little or no price increase.

Q: A word on ASP to sales 11.8%, where do you see it stabilizing?

A: It should stabilise at around current levels or may be a tad higher. We should see it around 12-12.5% for the full year. It has been a little muted in the second quarter compared to what we were in the first, largely on account of the festive season, which begins a little later. So, we break advertising now in October rather than September like we normally would have done.

Q: Your margins are slightly lower than expectation. While increase your ad spends to sales was expected, in fact yours is slightly lower, the street was expecting about 200 basis points, you have done 175 on a QoQ basis. Is it because raw materials were still a bit sticky and you expect Q3 to be slightly better?

A: Raw material was the culprit on the back of a very weak rupee, which did impact all the imports. Another reason was high inflation in raw materials which we source domestically, like honey or sugar. So, these two contributed to gross margin impact, which was a little negative compared to what we thought it would be. We still saw margin expansion at the gross level, but it was below expectations.

Q: A report from a brokerage worries that your new products both in consumer care division and consumer healthcare division require a fresh distribution setup. For instance, in consumer healthcare you need to get the doctor network in place. What are these new products? Where are you in the distribution set up?

A: You are absolutely right. The healthcare distribution needed a major reorg. We have completed the first part which is the reorganisation of the retail segment in terms of creating a separate distribution vertical for healthcare to cater the urban markets. The second part is extension of distribution in the rural markets, which is also in progress.

The third leg of the reorganisation is putting into place a team of detailing representatives who will call on doctors, sell our products and convince them to prescribe our products. So, that piece is still at a pilot stage. It should be completed in around 6 months to one year from now. This would really accelerate launch of new products in the OTC space, which is something we are interested in.

Q: The domestic volume growth at 9% is largely inline with what the street was expecting, but are you seeing any signs of slowdown? This is the first time when there was a discussion that consumers too, are facing some kind of slowdown. Are you seeing any of those signs?

A: There could be a slowdown in case there is another round of price increase taken by the sector on the back of high inflation. Then there is a possibility that it could be muted. We will try to mitigate it by distribution expansion, heightened A&P spends. So, we are still hopeful of volume growth in the region of say 9-11% and that's something which we will try to achieve in the next two quarters.