The biggest highlight of this quarter is the turnaround in the international business, said Sunil Duggal, CEO of Dabur India.
“The performance in this quarter is outstanding; 17% topline, 34% bottomline growth in the international business,” Duggal told CNBC-TV18.
This may not be easy to maintain because this is of a little bit lower base, but the company expect strong double digit growth emanating out of international business for the rest of the year, he said.
Edited Excerpts:
Volume growth is particularly impressive. Do you think it can be better as you said earlier that you are seeing improvement in rural demand?
Yes, there has been some improvement in rural demand. We are seeing some uptick in the month of March and hopefully it will accelerate. But the reality is that category growths and at least the core home and personal care (HPC) categories are still trending at around 5-5.5% which is not good enough.
We have managed a bit this time; we have done around 7.5-8% but to get into double digits which we so desire. I think the category growth have to revive and accelerate further.
There is every evidence of that happening and we hope that a good monsoon and other stimulus which we expect, the category would rave up to maybe the high single digit in which case we can again do a beat and get into the double digit growth numbers perhaps from first quarter onwards, but early days. At the moment it’s not very high in terms of the category but trending up a bit.
In the first half of FY19 should we still expect single digit volume growth in the domestic fast moving consumer goods (FMCG) segment?
We hope to up it to the very high single digits maybe low double digits but at this point in time I would perhaps say that 8-10% growth in the first half is something which we do anticipate.
Going forward into the second half there will be issues of monsoon, stimulus etc… but 8-10% is still what we will guide for the first half.
Last time you had indicated that your promotional expenses have gone down and that will result in an expansion in gross margins but is that a trend that is sustainable?
We expect gross margins to trend at current level. In the first half, the visibility in terms of inflation and all is pretty much there, so we have got our covers booked for the raw materials. So it will be stable in the first half.
In second half, it depends on how much inflation will hit. We do believe that we have pricing power to neutralise inflation. So I do not see margins trending down even in the second half but there may not be much possibility of improvement in margins. Remember that we are already sitting on historically higher margin, so growing on that is not going to be easy.
You are guiding for 8-10 and look at individual categories — Vatika 31%, honey sales plus 21%, toothpaste 14% led by Dabur Red which is 20%, healthcare growth 11%. Is Patanjali threat now a history?
The erosion of market share would happen basically in honey and I have been saying that for last few quarters – that has been now mitigated and we are now back to our erstwhile market share and we do hope to even grow on that because the acceleration in honey as you have seen in the last two quarters is very high. So I would say that the downside which happen on account of competitive issues are now largely behind us and the key challenge is that the category growth revise so we can ride on that and grow faster.
Is it fair to assume that there won’t be higher promotional expenses in order to defend the market share?
Certainly there would be higher advertisement expenses and if the category growth remain tepid then there would be acceleration in terms of promotional growth also because that typically happens when the growth is not there in the environment. So it is early days yet. Let us wait and watch and see how the category growth revive.
You said that the distribution network got broken because of Goods and Services Tax (GST) and a whole host of things and you even spoke about direct distribution. Is your network in place or will that yield the higher sales?
It already has. In the last two quarters or even the last three quarters’ performance including this one and the growth have been pretty decent – that wouldn’t have happened if we had not totally re-architected our distribution particularly in rural India and that is what lead to these gains.
Going forward, it’s pretty much in place, some improvements and fine tuning required, but this will help our rural growth to outperform the urban growth even in this quarter you have seen rural growth at around 3-4% higher than urban and this trend will continue.
The other thing that the street has liked is the way your international business has grown. Revenue growth in double digits for the first time in six quarters. Is that a trend that is likely to move further?
I believe so. The performance this quarter is outstanding; 17% topline, 34% bottomline growth in the international business. This may not be easy to maintain because this is of a little bit lower base, but I still see for the rest of the year; strong double digit growth emanating out of international business and the quality of this growth is good because our high margin Middle East and North Africa (MENA) businesses are now growing at a very fast pace and the lower margin businesses are not growing as much.
That is why this has led to sharp acceleration in our profitability. So that is the big turnaround and that is perhaps the biggest highlight of this quarter is the turnaround in the international business.
The MENA region is now richer because of the price of crude as well you are getting a rupee advantage. So can you really be surprised on the upside because of this twin tailwind?
We did expected. Therefore, I am not saying I was surprised, but it is still good to see the growth coming back. Saudi Arabia which is our biggest and most profitable market grew by 81% and that improves the whole quality of growth because the high margins which we realised from the market even the lower gulf markets, North Africa to some extent, Egypt in particular has done extremely well while there are pockets of pain particularly in most strife ridden areas of Algeria, Libya and Syria. Nevertheless, the growth in aggregate terms have been good and so is Sub-Saharan Africa and Turkey growths are also been good. So it has been a secularly good performance. Pakistan has performed well and so has Nepal. So we are happy with the way things have gone there.