Dabur says demand is down, looks to grow in high single-digits

The implementation of the 7th Pay Commission and amendments to Model Shop & Establishment Act will help boost demand and consumption in consumer durables space. Pay hikes and 24x7 opening of shops is directionally positive but cannot be quantified, says Lalit Malik, CFO of Dabur India. Good monsoon combined with above positives will boost demand in the second half of this year. “Though these sentiments are positive, the overall demand is still suppressed,” Malik says. Volumes for the company are expected to grow in medium single-digits to high single digits in FY17.On growing competition, Malik told CNBC-TV18 that market size in ayurvedic and natural care products has widened which will benifit Dabur. Premiumisation of products and research & development will help retain market share, he says. Toothpaste, a segment in which Dabur faces stiff competition from Patanjali, is growing at a steady pace on back of product differentiation. The company, however, had lost market share in honey to Patanjali, but that, too, is recovering now, Malik says. Dabur has a pipeline full of new products for FY17-18 to beat competition. Below is the verbatim transcript of Lalit Malik's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.Sonia: What could the impact be? Sentimentally will things improve because there will be more money in the hands of employees but can you quantify that for us in terms of volume growth?A: It is difficult to quantify in terms of volume growth but directionally certainly this will boost the demand for consumer goods, for consumer durables and also for automobile. So directionally it will increase. How much it will be, it is difficult to quantify plus in view of the model shop and establishment act change, which allows for 24/7 opening up of stores, this will further add and boost the demand and the consumption. So, I think directionally we can say that it is going to be positive but difficult to quantify.Anuj: The other big tailwind this year is likely to be monsoon, have you done some analysis -- after two sub-par monsoon if we have a good monsoon, what kind of growth it could mean in terms of demand, in terms of your overall numbers?A: As far as monsoon is concerned, good monsoon always helps in terms of boosting the demand and considering the expectation of good monsoon this year, we do expect in H2, which is from Q3, Q1 onwards some steady demand growth that will come in because it always comes with a lag. So we don’t expect anything positive in Q1 and Q2 but Q3 and Q4 onwards, we do expect to have a steady incremental demand rising out of good monsoon and also the fiscal incentives that have been taken.Sonia: Your food business had suffered a bit of a setback the last time we spoke because of the disruptions that you saw in Nepal. Are things back on track and how has the recovery been in the food business?A: I think we have suffered a setback in Q3 of last year in view of the disruption in Nepal border, which has opened up now and things have normalised. So, we do not see any adverse impact of that continuing in this fiscal financial year 2017.Sonia: If you put all of these positives together, recovery in the food business, the monsoon is playing out well and the Seventh Pay Commission Recommendations, what could the volume growth for the company be over the next one year? So far you have been in single digits around 6-7 percent. Do you think that you could get to double digits at any point in the fiscal?A: I think though these sentiments are very positive in terms of monsoon and Pay Commission etc, overall demand is still suppressed. So keeping that in mind, we do expect that for the financial year 2017 the volume should be within the range of mid-single to higher single digit but we do not expect any major boost to have it on a double digit volume growth scenario in this fiscal year. Especially as I said earlier we do expect the depressed demand scenario in Q1 and Q2.Anuj: We were talking to Marico yesterday and talking about the elevated ad spend levels and they said that that is the reality right now and that will continue, what is your thoughts on that particular aspect?A: I think we will continue to keep investing into ad expenses as per the requirement of our new product launches and also in terms of the seasonality of the products. So, we maintain to keep investing continuously into the ad spends in order to reach out to our consumer and to communicate with regards to the features of our products and also new product launches.Sonia: You did say that demand is suppressed but the other big issue is competition. Dabur has been facing a bit of hit from Patanjali whether it is in products like Chyawanprash or even in the honey, what are you guys doing to combat that kind of competition?A: I think in view of the competition, we do see the overall increase in the market size with regard to the ayurvedic and healthcare products so that would help the key players. Dabur being into ayurvedic and natural care products for more than 100 years, would always have an advantage in view of its premium products and also in terms of the quality which are high standards.So keeping that in mind, we will continue to keep investing and coming out with more and more premium products to provide the value addition to our consumers and we will utilise our strong research and development team that we have in order to come out with new and innovative products which will provide better value for price that the consumer is willing to pay and that we will keep on investing in view of our strong research and development (R&D) and in view of our strong wide stock keeping units (SKU) levels in ayurvedic and healthcare segment.Anuj: You see that in the shelves of Hypercity and couple of other malls, the kind of Dabur products in the ayurvedic segment but in terms of pricing, how do they compare to Patanjalis in terms of per gram price of toothpaste?A: As far as toothpaste is concerned with regard to our Red toothpaste and with regard to other categories, we are growing at a steady pace even in view of the competition and that is primarily because of the differentiation that we provide with regard to the ayurvedic natural and herbal care without having any chemical reaction. So that suddenly is helping us and as far as the pricing is concerned, it doesn’t have any material impact in the toothpaste category per se.Sonia: We understand how your business functions because it is very hard for a market leader to remain on top with so much competition from all other places, so tell us have you lost any market share at all? You are a market leader in Amla Hair Oil, honey, chyawanprash, in the last three-six months have you lost any market share to Patanjali?A: With regard to part of it, on honey we have lost some of the market share but that also we have now started recovering it back. Overall market share is maintained at the level in which we were in the previous years.Having said that, there is a pressure on the overall demand with regard to our products and that we see as an important area with regard to looking for increased demand sentiments that will boost the overall sale revenue scenarios. But with regard to the market share, we have been able to maintain our share in the past few quarters.Anuj: At what point do you think the companies will have some kind of pricing power or do you think that is some distance away considering the kind of competition that you are dealing with?A: I think we do have our pricing power and in terms of our products, we do have premium over other competitors in view of our strong quality and the premiumisation of the products that we offer. So we do have that price advantage but we also believe in providing the best value to our consumer and we therefore keep on investing in the promotional expenses to overcome the competitive impact on our products.Sonia: Since you did say that the market size is increasing in ayurvedic products and we are seeing a general preference towards natural and ayurvedic products, any more launches from the Dabur's stable?A: We do have new products in the pipeline and periodically, we will keep coming out with new premiumisation of the products in the respective categories. So you will see over a fiscal year of 2017-2018 we will come out with new innovative products and provide the value addition to our consumers.