Topline growth may pick up in H2, expect to retain margin: Dabur

Continued weak demand in the fast moving consumer goods space is likely to restrict volume growth over the next couple of quarters feels Dabur India CFO Lalit Malik. Margin, though, he believes could be maintained at current levels although there may not be any significant improvement.

Speaking to CNBC-TV18 after Dabur reported its quarterly results, Malik says some benefits of monsoons and the implementation of the 7^th pay commission might help lift volumes albeit at a slow pace during the second half of the year.

The company also plans to continue promotional offers on certain products to aid volumes. Similarly, advertising spends will continue as and when required, he says.Below is the verbatim transcript of Lalit Malik's interview to Sonia Shenoy & Anuj Singhal on CNBC-TV18.Anuj: The number that stands out clearly is the volume growth number, both volume growth and margins. Your margins look better than estimate but volume was a bit anemic. What are your thoughts on how both of these parameters are going to shape up from here?A: As far as the margins are concerned, we have got the benefit on account of deflationary impact on the material cost and we do expect to maintain the margin. However, there will be pressure on the margin going forward in view of the fact that some agro based pricing is already moving up and also we will have to wait and see what inflationary pressures will be. Having said that, also we have to keep in mind that in the last three to four quarters, there have been deflationary impact which is already sitting in the base right now. So, keeping that in mind we do expect to maintain the margins going forward in next few quarters although it will depend on the inflationary impact. As far as the topline is concerned, I think we do see the pressure continuing on account of low demand and the pressure on the overall demand on the FMCG sector. We expect it to continue for next quarter or two and considering the monsoon positivity and also seventh pay commission, it may start picking up in second half (H2) of the current year. However, it will be at a slow pace. Sonia: This demand weakness could continue for the next two quarters, will that keep your volume growth suppressed to around this 4 percent level that you clocked in this quarter or do you foresee volume growth falling further not just because overall demand is slowing down but also because you are facing a lot of competitive pressure from the likes of Patanjali, etc? A: As far as the volume is concerned, we will continue to focus on providing the consumer promotion (CPs) and trade promotion (TPs), the promotional offers to our consumers so that we can provide better values to them. So, we will continue to do so going forward and therefore I think it is difficult to predict the number with regard to the volume going forward. However, we do expect to maintain in the lower to mid-level of volume growth going forward. Sonia: However if you do give promotional offers to your consumers, that would come at the cost of your margins, right, that is something we have seen in the food business this time as well. Your margins have slipped to 15 percent because you are trying to compete in spaces like honey with a very cheaper player in the market like Patanjali? Do you expect margins to crunch down further in your food business?A: As I said earlier, the food segment that you have seen is primarily because of the networking impact that we had rising out of the Nepal disturbances that was there in quarter three and quarter four. As a result of that we have outsourced our supplies in the interim and that is why we see the freight and the other temporary impact which is seen in the food segment.On the honey side, I would say that we will continue to counter giving the promotional offers to our consumer in order to provide them better value. So, that certainly we will continue to do. As far as the pressure on the margin is concerned, as I said earlier, we don’t expect any enhancement. There would be pressure on margin but all our efforts to synergies will be to maintain the margin going forward. Anuj: What about ad spends because while Patanjali is quite aggressive with their ad campaigns and they do compete with you in a lot of products, do we see some more increase in ad spends as we move forward? A: If you see the ad spends in the current quarter, is in view of the new accounting standards IND-AS wherein a part of the promotional expenses, we have reduced from the topline as per the regulatory requirements. However, overall if you were to see total adpro expenses including CPs, TPs and the media cost, I think more or less we have maintained that. Going forward we will continue to invest into the adpro expenses as and when it is required and wherever it is necessary for us to reach out to our consumers; we will continue to invest in those.