Expect 10% volume growth in H2FY17: Dabur India

FMCG major Dabur India on Wednesday reported a Rs 357.3 crore profit for the quarter ended September against Rs 340.2 crore profit posted in the year ago quarter. The company's total income stood at Rs 1,981.6 crore. While Dabur India missed Street estimates its domestic volume growth was in line at 4.5 percent. Consolidated EBIDTA too missed estimates at Rs 408 crore.Commenting on the second quarter performance, Dabur CEO Sunil Duggal said the company is focusing on driving up volume growth. He added the company will intensify promotions to propel volume growth.Duggal said he is expecting 10 percent volume growth in second half of FY17.Duggal said though the move may impact margins, the trade-off will be beneficial for volumes. Dabur is prepared for erosion in EBIDTA margins for volume growth, he added.Below is the verbatim transcript of Sunil Duggal's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Sonia: The volume growth for you this time around is a little over 4 percent, but demand continues to be very listless in the sector as a whole including for company like yourselves, should we continue this low single digit volume even in the second half of the year?A: I think volume growth will trend up. We do see a little bit improvement in the market sentiment, but I think more importantly we will be driving promotions very aggressively to see the volume growths at much higher levels than what we have seen so far.Now this could have some negative impact on margins, but I still think that the trade off is to our favour, to our advantage and we should invest heavily behind a brands and drive volume growth.Sonia: When you say volume growth will trend up what are you looking at, because same time last year your volume growth was somewhere around 8.5-9 odd percent. Is that a more reasonable target to assume by the second half of the year?A: I think we will be looking at that kind of number between 5-10 percent perhaps closer to 10 percent and to do that we will have to really swing against the tide, because as I said the market sentiments still are very negative, the demand consumption side is very stressed including the rural. Now even if there is a small uptick it may not be lasting, so we will really have to invest behind our brands to drive that kind of volume growth, but I think we are pretty committed to do that and we believe that a 5-10 range perhaps toward the upper end of this range is imminently possible in the second half.Anuj: Do you think we are at a stage where maybe companies like yours need to compromise a bit on earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin to drive the volume and sales growth. Your EBITDA margins have been quite healthy and in fact in this quarter they have actually gone up. Do you think maybe we are going through that phase where you might have to take a bit of a hit?A: We are prepared to do that nothing significant though, but we are prepared to have some small erosion in our EBITDA margin, if it means that there is substantial improvement in our volume delivery, that something we are now in a process of doing. If we are lucky then the demand side will also improve and therefore the margins will remain pretty constant. We may not have the same promotional intensity as we are currently planning, but we are prepared for the worst case in terms of some level of erosion of margins.Anuj: And what would be that worst case and cost benefit analysis, what kind of margin erosion and what kind of volume growth if that has to be compensated?A: Well, let put it this way I would be willing to trade off say 50-100 bps off EBITDA to drive a 10 percent volume growth. That is the kind of trade off we are looking at. I am putting it very crudely, but broadly that is the thinking which we are embarked on at this point in time.Sonia: Just tell us how much is the promotional expenditure that you have incurred exactly in this quarter and as a percentage of overall sales, how much you think it can go up by in the second half of the year?A: If you take consumer promotions which is really what we are doing very aggressively and trade promotions, they would trend up from around 3 percent to more in the region of 4-4.5 percent of revenues. At the same time we may take down the level of intensity in terms of above the line spends as well as in terms of the trade promotions, what you give to the intermediaries. The focus would be on consumer promotions offering better value to the consumer and having better off take for our brands and gaining shares at our competitors’ expenses.