Mulling 5% price hike to counter input inflation: Dabur

Chief executive of Dabur India Sunil Duggal says they are mulling a 5% price hike in the next quarter so as to overcome margin pressures due to inflation in raw materials. “We probably will have to take it up by a little bit more than that because we don’t see inflation coming down in a hurry,” he said in an interview to CNBC-TV18.

Dabur India’s margins took a beating in the last quarter of FY12 due to rising input inflation. “In addition, we had significantly ramped up our advertizing spends, which did erode the EBIT margins a little bit,” said Duggal. Even though the spends hit margins, Duggal says it was instrumental in delivering strong topline growth. “We grew 27% on a consolidated basis and around close to 20% as far as the domestic business is concerned,” he said. Going forward, Duggal sees Dabur growing around 15%. Below is an edited transcript of his interview with Sonia Shenoy. Also watch the accompanying video. Q: Where have the pressures seeped-in this quarter around and what kind of margins do you think you can hold in the next couple of quarters? A: The inflationary pressures remain as we all know. In addition, we had significantly ramped up our advertizing spends, which did erode the EBIT margins a little bit. But the higher spends have resulted in one of the strongest ever top line growth. We grew 27% on a consolidated basis and around close to 20% as far as the domestic business is concerned. We are on the right track and this is a matter of time before the margin revival happens. We do expect inflation to now moderate a little bit going forward and then we will be taking up another round of price increases starting from the Q2. So I do expect a gradual uptake in terms of the margin profile, but so long as our revenues streams are strong, we are not very concerned about the margins. Q: Could you tell us what the volume growth picture has been in Q4 blended and even if you could break that up in domestic and international side? A: If you take a consolidated picture, the volume growth has been 12%, which is perhaps one of the higher ones which we recorded in the last three-four quarters. The price has been stubborn and we have had 3% translation gains. Similarly, as far as the domestic business is concerned, we did a close to 20% growth in top line, which was half volume half price, around 9.5-10% of each. So it’s been a much better volume delivery despite very high prices than what we have seen in the previous couple of quarters. Q: This quarter you told us that the ad spends had gone up considerably. Are you planning to increase you ad spends further? In FY13 what could be the percentage of ad spends we could expect for Dabur? A: We probably won’t increase them further. We are pretty satisfied with the levels we spent in the Q4 and that trajectory would remain as we speak. We could trim them a little bit if inflationary pressures further mount but I think that’s unlikely. The current level of spends is what is required to drive the business trajectory growth at an aggressive pace and that’s what we would like to do. Q: Just taking that point forward about inflationary spends, what kind of price hikes has Dabur taken this quarter and going forward are there any more price hikes on the anvil? A: This quarter we are soft pedaling prices because we did take considerable price increases in Q3 and Q4, particularly in Q3. We are just giving the market a little bit of time for the prices to settle down. Q2 we would witness another round of price increases, I think it’s inevitable. What we are seeing is the price increase in the region of 5% for the current fiscal but I have my doubts whether 5% would be adequate. We probably will have to take it up by a little bit more than that because we don’t see inflation coming down in a hurry. Q: Are these price increases to offset the excise hike which was announced in the Budget? A: Partially yes, but that was fairly moderate under Rs 40 crore in terms of business impact. Sp most of it would be to counter inflation and only a small part of it for the excise impact. Q: Can you give us what target do you have for volume growth in FY13? Is there a chance that your volumes could be restricted because of the price increases? A: I think a reasonable expectation in terms of business growth is 15% and as we speak the likely trajectory is 10%, 5-10% in volume and. As I mentioned, if 5% price increase is not adequate, we would probably still see 15% growth. The new Neilson numbers indicate that there is a significant up take in the rates of growth for FMCG. If that is sustainable, then I think the market would be in a mood to digest the price increases a little bit better than what it did in the past. But a 15% or a mid teens growth for the domestic business is par for the course as far as we are concerned. Q: What is been the growth rate that we have seen in the international business in Q4 and going forward what could we expect because that’s the space which is done well for you’ll atleast last quarter? A: The overseas impact and this is all organic because the acquisitions have been fully lapped in the Q4. The growth in INR was around 42-43% and in constant currency was around 29%, so strong growth, good set of numbers and the growth there is interestingly enough entirely volume driven. There is very little price increase which have happened overseas. The acquired companies have done well, the growth have been in the mid teens around 15%, 16-17% for both Hobi and Namaste. So I think that Q4 atleast in terms of revenue side has been good from all fronts. All our domestic categories have done extremely well, so we are pretty satisfied with the outcome.