May hike prices by 2-3%; increase ad spend: Dabur CEO

Dabur India which reported its fourth quarter number today posted a volume growth at 12 percent, which is highest in last 11 quarters. The company said that they will be able to maintain volume growth of 8-10 percent going forward.

Dabur's net profit stands at Rs 200 crore verses Rs 171 crore on y-o-y basis. The company will continue to aggressively spend on advertisement.

Sunil Duggal, CEO, Dabur India said that he is optimistic on the demand front, unless monsoon disappoints. He also added that, the rupee depreciation has created margin pressure on food business. The company plans to hike price of their product line in the range of two-three percent.

Below is the edited transcript of his interview to CNBC-TV18.

Q: In this quarter we saw slight beat in terms of margins, although your volume growth has surprised a lot of analysts coming in 12 percent higher, will things move from hereon? Are you making a compromise on the margin front to boost volume growth, where do you see margins moving from here?

A: Our profit growth is good at around 18 percent, the EBITDA growth has been 21 percent. We have posted highest volume growth of above 12 percent compared to last 11 quarters. We always maintained that we will operate in the band of 8-12 percent and this trajectory would continue at least for the next few quarters.  

Q: We saw your advertisement spend taper down. It came around above 5 percent and stayed around Rs 190 crore. The market was quite impressed with this. What is your outlook with regards to ad spends going ahead?

A: In the fourth quarter of last year the numbers were around 13 percent and we intend to maintain that trajectory. So, there will be no huge change in the ad pro ratios. They will remain the same. It was low in this quarter due to some seasonal factors. We will continue to maintain aggressive spends in advertising.

Q: Are you facing any concern on the demand front and how do you expect it to move going forward?

A: Demand is remarkably resilient if one look at the baseline products, the bottom of the pyramid brands. There is little bit of easing off at the discretionary end but the staples are proving to be resilient for us. Perhaps it is a consequence of our distribution reorganisation and investments which we made both in terms of brand building and distribution infrastructure. Going forward we are not worried about the demand from rural India.

We are entering into election year, so stimuli will happen at the rural end so I am optimistic about the demand front unless there is a very bad monsoon or something exceptional. As we see today things are looking pretty good.

Q: On the international front, how has Namaste and Hobi performed and what is the outlook on both of them?

A: The organic business as always, did well, and we recorded 20 percent growth. This is largely centered around the Middle East and North Africa (MENA), pockets of weakness particularly in Nigeria and Syria due to reasons which are beyond our control and political reasons more than anything else, but the core Gulf Cooperation Council (GCC) business and the North Africa business is performing well. Hobi came out with very strong set of numbers, over 40 percent growth.

The Namaste business was under pressure for the last quarter. We will see strong revival happening next year. It degrew by around 10 percent. So, overall the consolidated numbers for overseas businesses were bit soft in this quarter at around 11 percent but again the baseline numbers for the organic business looks strong. So, a mixed bag and going forward we would see a better set of numbers emerging from overseas business.

Q: Your foods business which contributes about 12-15 percent to your business is seen as a big expansion in the EBIT margins but the consumer care segment which is your bread and butter segment the EBIT improvement is not to the extent that we are seeing elsewhere, is this where you hope for margins to sustain in your consumer care business or do you think you could do better than this going forward and what would be the outlook for the full year?

A: The foods business despite its very strong performance at the top line is facing margin pressures on account of the rupee depreciation and high cost of raw materials mostly which are imported. So, this is an area of concern as far as margins are concerned, the core consumer care business is doing pretty good.

We are riding on the back of softer raw material costs, we have also cut back a little bit on advertising as you mentioned so the EBIT margins of the core consumer business minus foods has actually improved. The foods business is under more pressure.

Q: Is your 17 percent EBITDA margin sustainable?

A: I think we will be able to sustain the margins. On a standalone basis, EBIT margins are close to 21 percent which is the highest in the industry for the domestic business. In overseas operations, Namaste has been instrumental in driving down EBIT margins at the consolidated levels. So, 17 percent is a baseline and we should look at margin improvements over and above this. We are seeing a softer raw material environment going forward.      

Q: Any price increases that are in the offering and what would be your revenue guidance for FY14?

A: The price increases would be few and far between. I was initially looking at around 4-5 percent price increases but we are seeing a cooling off of commodity prices so I will moderate it down to around 2-3 percent. I think we should generate revenue outlook in the mid teens in the current fiscal.