Personal care products manufacturer Dabur India expects its margins to be under pressure going ahead on account of inflationary concerns. Speaking to CNBC-TV18 about the financial performance of the company, CFO Lalit Malik said that the company has seen good sales growth in healthcare and skin segment and nearly 45 percent sales came from rural areas.
Its third quarter consolidated revenues grew 16.7 percent to Rs 1,909 crore compared to a year ago period, supported by strong growth in international business. Net profit rose 15 percent year-on-year to Rs 243 crore, but higher employee cost and advertising expenses affected its profitability. Going ahead, Malik expects ad-spends to hover in the range of 13-15 percent.
Below is the edited transcript of Lalit Malik’s interview with Sonia Shenoy and Anuj Singhal of CNBC-TV18
Q: You have seen quite a bit of pressure on your operating margins if you could take us through that and where would the margins stabilize going forward?
A: On the topline we have grown pretty healthy on 16.8 percent on margins, EBITDA has been 14.5 percent and 15 percent is on the PAT level, which is a steady growth is. There has been a investment that we have made in the ads for new launches and strengthening our distribution network by adding 350 people into the chemist channel, which has helped us in gaining our foothold. Therefore I would say that this has been an investment on the infrastructure and strengthening the base for our incremental on the topline. Considering that, this is a steady profit PAT growth of 15 percent on a topline of 16.8 percent.
Q: Do you expect this margin pressure to continue and what could the range be for the margins going ahead say for the next couple of quarters?
A: We don’t give any future predictions as such. We do see that there would be some margin on account of inflation forward. However considering our product strength and the external environment, we do see steady growth on the margin and topline in the next couple of quarters.
Q: Volumes growth has also been lagging a bit. Do you sense the rural pickup that we saw is that plateauing out? Is that a concern or is there some other reason that we haven’t seen too much of volume growth this quarter?
A: On the India FMCG level, we have a volume growth of around 9 percent which is steady inline with our previous quarters also. We have seen a steady growth coming up primarily on account of good growth on healthcare, juice sector and also on shampoo. We have seen a steady growth of 9 percent on the volume side and overall FMCG has grown at 14 percent in India.
What has pulled us down is more on account of the commodities which is on the guar gum sale. With regards to rural versus urban, rural segment is growing steady at around 13.4 percent. On the urban side we are gaining advantage on the modern trade which is growing by more than 24-25 percent. We have seen 45 percent of total sales coming from rural.
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Q: You have had to make higher amount of ad spends this quarter to push your products, which has gone up about 25 percent. Going ahead can you give us an estimate of whether you will continue to see this higher run rate of ad spends and as a percentage of sales how much could it be?
A: It would be between 13-15 percent. That is what we normally spend. We have higher ad spend in this quarter. It is primarily on account of the new launches – Ratnaprash, Fem natural range of no added ammonia, Vatika Olive Oil and Odonil One Touch etc. We have gone very strong on the new launches. Going forward we do expect ad expenses to be within the range of 13-15 percent at the consolidated level.
Q: This 15.2 percent would be the top of that range in terms of ad spends?
A: That is right. It also has some seasonal impact also; it is always linked with new product launch and seasonal products also. On an annualized basis, it would give us a range of 13-15 percent.
Q: Any more price hikes that you guys are planning to take to compensate for the higher raw material costs and if yes what could the quantum be?
A: On an annualized basis we have always maintained that we would have around 4-5 percent price increase. In the last quarter, price increase has been around 1.2 percent. Going forward, we would take price increase on a much selected basis based on the inflationary impact and our internal synergies and efficiencies.
Q: One more follow up question on the volume growth because this is something that has been concerning a lot of your peers on the street as well. How many more quarters do you think it would take before which the volume growth gets back to that high double digit level – 15-20 percent?
A: I don’t think we have grown at 15-20 percent volume growth in the past. Our range has always been between 8-12 percent. This year we have been around 9-9.5 percent.
Q: Since you are saying that the higher end of your range has been 12 percent when do you think Dabur would get back to that 12 percent mark?
A: It will all depend upon the external environment. When the economy starts turning around on a positive side, we would expect a gradual growth in the volume to come going forward.
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