See domestic volume growth at 8-12% in FY13: Dabur India

In an interview to CNBC-TV18, Sunil Duggal, chief executive officer, Dabur India says , the demand scene seems to be a little bit muted now as compared to six months ago. "I think the villain really has been inflation. We have mitigated that. Therefore, the volume growth remains strong by aggressive distribution initiatives particularly in the rural area," he adds.

He expects a domestic volume growth of around 8-12 percent. "We have invested enormous amounts of money in expanding our last mile reach to the remotest corner of the country. I think that has mitigated the lack of demand. So, I would still say that the volume growth would be in the region of 10 percent odd," he asserts.

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Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.

Q: Winter session, what is your initial reaction? Are you expecting that this is going to be a fruitful session? Would you look at the government and action from the government a little more positively?

A: I think it will be fruitful session. We certainly hope it will be. The FDI in retail perhaps will be passed during this session. We welcome it. We believe it will significantly lubricate the whole supply chain, bring down cost and be a big tool in fighting inflation. We also believe that there will be adequate amount of safeguards for local industries so that they will not be penalised as a consequent.

Q: Are you yourself looking at this rule in some fashion? Are you speaking to anyone at all? How the FDI in retail is personally impacting?

A: I think it will just improve demand, facilitate new product initiatives and overall deliver better value to the customer. So, we would welcome it from that perspective. I do not think there is any huge impact on FMCG per se. Our distribution systems are already in place, but it would definitely be to the benefit of the industry.

Q: There are reports indicating that you all have lost market share in the hair oil division at this point in time. What your current market share stands at? What sort of competitive intensity are you seeing? What are the dynamics that could play out?

A: There has been some loss in volume market share. I think the value share loss has been fairly muted. The reason for that is very intense competition at very low price points. Having said that, our growth in the hair oil segment has been very satisfactory, the perfumed hair oil segment in particularly. We had been growing in the mid to high teens. So, some loss in market share does not really impact us, because the profit delivery has been maintained and accelerated.

I think we believe that this disruptive competition generally tends to play out over a period of time. We do have some temporary loss of shares which we can regain. So, it does not bother us very much. We are pretty much in control of the situation. We look forward to regaining our shares in the months and quarters ahead.

Q: The other point was that maybe you would be actually looking to expand your portfolio via an inorganic route within the hair oil division. There are unconfirmed reports doing the rounds. Would that be on the cards at all? Would that be something that you would be contemplating seriously in order to grow your market share?

A: We will certainly look at opportunities within the hair oil space and also within the larger ambit of HPC and personal care. Having said that, there is no target at this moment on the table and available to us. Some of the speculative news reports, which went around, we were quoted as saying that we are close to clinching a deal. But let me tell you that there is no substance to that.

If there is something, which comes along the road in the future, we would certainly take a look at it. But, in the interim, we are very busy developing our own hair oil initiatives. We have launched the hair oil last year. We will be launching another one this year. We will continue to invest in this category. The Amla hair oil, which is one of our larger brands has been completely revamped, refurbished. The growth in this category has been pretty smart.

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Q: How international business is doing? How are revenues panning out over there? Which are the regions that are showing promise and worries?

A: I think the emerging markets are generally showing good promise. The Middle East and North Africa (MENA) region is continuing its very high growth trajectory. The margin profile has improved considerably over what we saw last year. Sub-Saharan Africa is going at a good pace.

I think the only area of some concern is US market. That is not really growing at the pace with which we hope it might. But having said that, it matches the overall growth of the US economy. That is something which we will have to deal with. So, the overall international business delivery would be perhaps superior to the India business, but not significantly so, unlike in the past.

Q: How will prices pan out? Will you need to raise prices?

A: I think so, yes. I think the price increase this year has been much ahead of what we had anticipated six-nine months ago where we thought price increase will be very muted to 3-4 percent. It is already in the region of 5-6 percent. We do see prices going up further.

The inflation scenario has not played out as well as we hoped it might. Inflation still is close to double digits and is impacting margins. So, there is no alternative, but to take up prices. As a consequence, the margin growth has been a little bit muted this year. It is definitely ahead of what we were last year, but it is not as good as what we had hoped it to be. But the volume delivery seems to be good. I think that is really the bright side. Overall, the business momentum remains reasonably strong.

Q: You spoke about volume briefly. You have guided for a domestic volume growth of around 8-12 percent or within that range. Are you seeing any sort of contraction coming into demand at all, within the domestic market? Are we possibly going to scale down that 8-12 percent range or are you going to be at the low end? Can you just give us a sense in terms of the dynamics playing out in the domestic volume market? In order to actually counter the competitive intensity, at this point, are you increasing ad spends quite significantly?

A: I would still retain 8-12 percent band. I think we are pretty much certain that we will be in that band. Whether we will be in the lower end of the band or whether we will be able to crack double digits in volume growth still remains to be seen. We have still a quarter-and-a-half ahead of us.

Overall, the demand scene seems to be a little bit muted now as compared to where we were six months ago. I think the villain really has been inflation which has impacted demand to some extent. We have mitigated that. Therefore, the volume growth remains strong by aggressive distribution initiatives particularly in the rural area. We have invested enormous amounts of money in expanding our last mile reach to the remotest corner of the country. I think that has mitigated the lack of demand. So, I would still say that the volume growth would be in the region of 10 percent odd.

A&P spends would remain high. I think there are a lot of money which is going into new product initiatives. I have mentioned the hair oil launch, which we are proposing in the next quarter and there are a couple of other launches which offer a pretty high intensity, will take up a lot of money. So, the A&P spends would remain much higher than what we saw last year.