May hike prices by 3% in Q3; see higher Q2 margins: Dabur

Sunil Duggal, chief executive officer, Dabur India is expecting a 50-100 basis points (bps) rise in the company's margins in Q2. Speaking to CNBC-TV18, Duggal says the company is likely to hike prices to the tune of 3 percent in order to help mitigate the inflation costs. 

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"I think the EBITDA margins would go north and there will be a little bit of help from our overseas business where we are seeing very strong growth in the margins," he adds.

Below is the edited transcript of Duggal's interview to CNBC-TV18.

Q: A brokerage report says that Dabur management is guiding 400 bps EBITDA margin expansion in FY14, where is that confidence coming from?

A: We believe that now price increases will kick in and we will be able to mitigate some of the inflation impact through that. Also, a better mix delivery particularly in the rural areas would enable some improvement. It may be not 100 bps but it will be some improvement over last year which is not as good as what we expected when we started of the year. However, I think the EBITDA margins would go north and there will be a little bit of help from our overseas business where we are seeing very strong growth in the margins.

Q: What according to you will be perhaps the margin increase, will it be in the range of 20-30 bps or closer to 50 bps?

A: It looks to be in the range of 50-100 at this point in time. These are still early days and there are more than six months of the year yet to finish. A lot will depend upon currency movements, how the international business performance happens. The domestic margins are likely to be flat to marginally positive.

Q: You referred to the rural growth, what has been the trend in urban India, have you seen distinct signs of slowdown and would that be an area of pressure?

A: There has been a softening of demand generally speaking in urban India. It is a little bit more pronounced in the more discretionary areas of the business. However, if one has a strong value preposition, one would still be able to generate growth. So, overall much higher level of growth is coming from rural as compared to urban.

Q: You said you will have to go ahead and increase your product prices in order to aid your margins as well. How much will the product price increase be say in the next three months and what do you plan to do for the full year?

A: The full year outlook is around 6 percent, out of which we have done around half. The rest and another 3 percent or so would happen in the next quarter or may be little bit after that. So a total of around 6 percent price increase is the likely scenario as far as the domestic business is concerned.