Dabur India Limited
Investors / Analysts Conference Call
May 9, 2007
Conference Call on the Audited Financial Results for the Year Ended on 31st March,
Dabur India Ltd.’s Participants
Mr. Sunil Duggal, CEO (Chairperson)
Mr. Rajan Varma, CFO
Mr. Ashok Kumar Jain, AGM-Finance & Company Secretary
Mrs. Gagan Ahluwalia, DGM-Corporate Affairs
Mr. Byas Anand, Manager-Corporate Communications
Mr. Raman Preet Sohi, Senior Executive
Gagan Ahluwalia : Thank you Rita. Ladies and gentlemen, hello and welcome to this
conference call on the results for fourth quarter and the year 2006-2007. Present here with
me are Mr. Sunil Duggal, CEO Dabur India Limited, Mr. Rajan Varma, CFO, and Mr. Ashok
Jain, General Manager Finance. We will now start with a brief presentation by Mr. Duggal
followed by a question and answer session. I request Mr. Duggal to kindly start the address.
Sunil Duggal : Thank you Gagan. Ladies and gentlemen, I welcome you all to our
conference call regarding the results for the fourth quarter and 12 months ended 31st March
2007. Dabur India Limited has registered an impressive growth of 17.6% consolidated sales
during the year and 24.5% in net profits before exceptional items.
During the fourth quarter, consolidated revenues registered a growth of 20.1% and net profit
grew by 23.2%. There has been strong double-digit growth across most business divisions
during the year. CCD grew by 15.6%, CHD the consumer health division by 8%, foods 28%,
and international business division 29%. The impressive growth of 20.1% during the quarter
was achieved due to accelerated quarter growth of 20% registered by the consumer care
division and sustained higher growth rates by other divisions.
Oral care category recorded growth of 17% for the year and 18% for the quarter. The
toothpaste portfolio grew at an impressive 29% during the year and 28% during the quarter.
Dabur brands were the fastest growing in the toothpaste category with volume growth of
29% as compared to category growth of just 12% according to Nielsen data. Key drivers of
growth in this category were Babool, which grew by 49%, and Dabur Red Toothpaste, which
recorded growth of 16%. Red toothpowder, which saw a decline in the previous year,
registered growth of 7% during the year.
Hair Care category has posted a strong growth of 16% during the year and 24% in the fourth
quarter. Shampoo category led by the Vatika range grew by 31% in the year. Vatika
shampoo was also the fastest growing shampoo brand for the year as it recorded 35%
growth as against category growth of 12.3% in the Nielsen data. Hair oils posted record
growth performance with growth of 13%. Growth in the fourth quarter was even higher at
21%. Amla Hair Oil grew by 11% for the year and 19% for the quarter. Anmol Coconut Oil
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registered increased sales by 44% and Anmol Mustard Oil by 24%. Sales of Vatika Hair Oil
registered a growth of 8.9% for the year, and 29% in the quarter.
In CCD, the health supplement category posted a robust growth of 19% for the year and
21% for the quarter. All the major brands in this category performed well. Chyawanprash
registered 20% growth, Dabur Glucose 27%, and Honey 15%. As part of our plans to
introduce variants of Chyawanprash, we had launched Chyawan Shakti targeted at young
adults to provide relief from stress. The second addition to this portfolio is Chyawan
Prakash, which is a sugar free variant of Chyawanprash and is meant for diabetics and the
health conscious. This variant has been test launched in North India.
Sales in the digestive category picked up with overall growth of 6% for the year and 10% for
the quarter. The Hajmola brand has done well during the year, with Hajmola tablets growing
by 10.5% and Hajmola candy by 18.4%. A new lemon flavor was launched in Hajmola
tablets. Pudin Hara recorded a decline in sales of 10% impacted by spurious products.
Baby and skin care category registered flat growth primarily due to loss of sales of Gulabari
due to production change over and slow down in the soap category. However, we believe
this to be temporary phenomenon and are bullish about this category. And soaps is a
segment which requires a larger scale and product variations. We have launched two new
variants Vatika Sandal and Saffron, and Vatika Orange Peel soap, which have received
good response and which are expected to add scale to this category.
Home care category recorded growth of 35% for the year and 58% for the quarter. Odomos
cream grew by 43%. Odomos coils introduced in the first quarter received good response
and have been rolled out for new geographies. Odonil brand recorded a growth of 28%.
Odonil aerosols which were introduced during the year have done well and will lead to the
introduction of more formats of air fresheners going forward.
The foods business recorded growth of 28% for the year and 26% in the fourth quarter. The
flagship brand Real posted 28.4% growth. A new range of Active soya and food range has
been launched and rolled out nationally. Active portfolio addresses the health conscious
young adults and the new range provides extra nutrition through the soya base, which is
increasingly being recognized as having good health benefits. The division added apple
nectar to the Real Juice portfolio to address the fast growing apple juice segment. The
division also introduced three new variants launched under Real Twist Mango Apple, Mango
Pineapple, and Mango Orange, which is a fruit drink and addresses a larger market.
Consumer health division grew by 8% touching sales of 162 crores. Honitus cough syrup
and Nature Care grew in excess of 20%. Shankha Pushpi and Shilajit also delivered double
digit growth rates. The division launched Dabur Almond Oil, which has seen good response
during the last quarter. This division has been under consolidation during the year.
International business recorded a growth of 29.1% for the year and 32% during the quarter.
The performance was encouraging in most of the focus markets. The drivers of growth were
GCC, Egypt and Pakistan. A new subsidiary called Natural LLC has been formed to set up a
manufacturing unit at Ras Al Khaimah, UAE, for manufacturing Dabur products for the
Middle East and African markets. This would involve investment of about Rs. 36 crores in
the next fiscal.
On the operating front, the EBIDTA margins improved by 80 basis points to 16.8% for the
consolidated business. There has been some inflationary pressure, but the company has
been able to manage the same by taking moderate price increases in the range of 4% to
5%. In addition the leverage due to lower growth in fixed costs has helped maintain the
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The company has paid an interim dividend in the fourth quarter which was treated as a final
dividend by the board. The pay out ratio for the year remained at around 49%. 2006-07 has
been a year of revival in the FMC sector. The company has performed well and has met
and exceeded expectations on many fronts. We will continue to build the growth drivers
aggressively and capture the opportunities as this market evolves and changes. We are
also trying to think ahead and provide for the future challenges so that the growth trends can
be sustained in all our businesses. With this I would now throw open the house for the Q&A
sessions. Thank you.
Joshi from Anand Rathi Securities : Hello sir.
Sunil Duggal :Hello.
Joshi : I just want to know about your retail venture. Can you just please update about that?
Sunil Duggal : Yes, pretty much what we discussed last time, the scene is now beginning to
be formed, the CEO comes on board some time in the next fortnight. Then we will begin
recruitment of people at the next level. The team should be largely completed in the next
three to six months and we do expect the first store to open about the fag end of the current
fiscal. First quarter of 2008 is when we expect the first store to open.
Joshi : Okay. Sir, any reason we have moved to the retail venture as such. I think if you
look at the ROE of that segment it is not as high as our original FMCG business. So any
reason to go in for that and what are the total capex requirements and expected breakeven?
Sunil Duggal : Yeah we will be infusing equity of around 140 crores in this venture. That
will be a subtotal of our investment in this venture. We believe that the specialty retail of the
kind that we are entering into is a unique proposition, which nobody else has had. So we
are not entering mainstream in a large format retail, it is a specialized health and beauty
venture. We believe there is a lot of value creation possibility in this venture. It is an
extension of our health care products business, even though we run independently. So we
believe that this is a venture which will add a lot of value to the Dabur business.
Joshi : Okay and what are the target what we are seeing this segment, I mean to say may be
two years down the line, three years down the line.
Sunil Duggal : I could suggest that for the retail venture we will be having a separate
investor meet, which the new management would address detailed questions. I would
address all the key issues which investors would have. It is our whole business plan which
is being unfolded and I would request that if you can just park some of these more detailed
questions for sometime in June, we will be you know quite happy to answer them. But the
broad contours you are welcome to ask about the retail venture. Like I said it involves an
equity infusion of 140 crores for the next 3 years, we are looking at opening of 350 stores in
the next five years, aggregate revenues of around 1700 crores, so these are the broad
numbers which go in to the plan. Details may be you can park for a few weeks more.
Joshi : Okay, and just one more thing, regarding our current results that income tax rate is
depressed to around 7% level. Any reason why is the income tax rate is so low.
Sunil Duggal : The reduction has happened in the treatment of deferred taxation. Further to
the merger of the Balsara group of companies, the deferred tax that was leviable on the
merged entities of Balsara and as per the accounting standards was adjusted against the
opening reserves, which consequently led to a reduction in the actual charge for Dabur India
consolidated balance sheet, consolidated here defined as the Balsara and Dabur merged
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Joshi : Okay, that was my question.
Raman from Capital Market : Good evening sir.
Sunil Duggal : Good evening.
Raman : This is Raman from Capital Market. Sir, my question is mainly focused on the
herbal product exports.
Sunil Duggal : Herbal product exports.
Raman : Yes sir, could you please give what are they like during FY06-07. What are the
exports made by the company in this region?
Sunil Duggal : See we actually export very little. Our international business product is
almost entirely manufactured overseas. We have around seven plants all over the region.
So very little is shipped out of India. Our business is largely in the domain of personal care
and toiletries. We have plants existing in Dubai, Africa, Bangladesh and many other
locations. So in terms of what we call the international business division, it really represents
what perhaps we mean by overseas sales, out of which not more than 5 to 10% is actually
exported out of India. The balance is manufactured overseas.
Raman : Okay, so means the exports are very less for the company as of…
Sunil Duggal : Yeah we believe it is somewhat economical to manufacture overseas for
local markets both in terms of cost and in terms of logistics. So we prefer manufacturing
overseas. Only some products say like Chyawanprash which are very hard to manufacture
because of a very complex ayurvedic formulations, are shipped out of India, but personal
care and toiletries, hair oil, shampoos, toothpastes are all manufactured abroad.
Raman : Okay, sir like in, if I see the recent guidelines by there is a particular reason called
Pharmaceutical Export Promotion Council, it is a part of Government of India, they
essentially give guidelines for export inspection certification program. So does this apply to
the Dabur India also?
Sunil Duggal : I am not very sure, but just to answer your question, the export of ayurvedic
products is regulated by the regulatory environment prevailing in the specific countries. In
most cases ayurvedic medicines are not recognized, so that imposes a huge limitation on
export of our ayurvedic products, but in many cases we do export them as food supplements
or health supplements. So many of these guidelines would be specific to pharma
companies and not to ayurvedic manufacturers like us.
Raman : Okay. Thank you very much sir.
Sunil Duggal : Welcome.
Akhil : Good afternoon Mr. Duggal.
Sunil Duggal : Good afternoon Akhil
Akhil : Hi, I just wanted to know if you could explain the reasons for the slow growth in the
consumer health business this time around, because historically it has seen quite a good
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Sunil Duggal : Well, last year we grew at extraordinary high pace and the main reason why
we did not grow at a good pace this year was (A) we wanted to consolidate this business, we
wanted to rationalize, we opened up a lot of new stockiest, some of them were not viable,
we had to close them down. There was some delay in introduction of OTC health care
products. So that 40% growth which you saw last year was partly driven by an acquisition
which we made. There was none this year, so a variety of reasons. I think we should be
back and the division should grow in line with overall business in the current year.
Akhil : Okay, because there was I think the OTC delay in the last quarter also, does it
continue in this quarter also?
Sunil Duggal : Yeah, I mean, during the year, we should have launched some more
products than what we did and that was for a variety of reasons.
Akhil : But going forward, do you see.
Sunil Duggal : Going forward, yes I think there are possibilities in terms of acquisitions,
there are brands available in the OTC health care space, and we also have a pretty decent
pipeline of products in our R&D with some of them should have emerge in the current year.
So for this business, I think the growth would be in line with overall company, so you would
perhaps not see the very accelerated growth which you saw two years ago, neither would
you see the comparatively lower growth which you saw last year, but somewhere in
Akhil : So, organically we could grow by around 10 to 12%.
Sunil Duggal : Hopefully more than that. Our internal benchmarks would indicate a higher
growth than that.
Akhil : Okay, and secondly in the foods division, you mentioned that the margins were hit
because of raw material pressure.
Sunil Duggal : Partly yes.
Akhil : But is this raw material pressure structured or is it just one time because of
Sunil Duggal :It was largely due to the very sharp increase in price of orange concentrate
and that was caused by multiple crop failures both in South and North America. We believe
that these are part of commodity cycles, these are part of the hazards of operating in food
and beverage space. This year the crop is likely to be better, we do not see prices rising to
levels which we saw in 2005-06, but certainly they will be lower than what we saw last year.
So there should be some margin expansion on account of raw material prices, but we are
also looking at having a better mix and looking at pricing options to improve profitability, so
you will definitely see a much better margin story in foods this year than you saw in the last
year, the worst is behind us. Also, part of the margin erosion was on account if big
investments in terms of sales and distribution, as you know we have just launched a range of
lower priced fruit juices under the Twist brand. These require a distribution infrastructure of
a much higher level, go in to smaller towns, so that required up front investment in S&D,
which hopefully this year we will see the fruits of that coming in.
Akhil : Okay, great. And one last thing is which refers to price increases, had there been
any specific price increase in hair care and oral care?
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Sunil Duggal :Yes we have done for Babool and Red toothpaste. In the case of hair oil, we
did increase prices early last year, we are actively considering another price increase in the
next few weeks.
Akhil : Okay, in hair care?
Sunil Duggal : In hair care. Shampoos also we did some price increase last year. So price
increases have been opportunistic partly driven by market conditions, partly inflationary
pressures. They have not fully neutralized the material cost increase in the last year, but
because lot of the price increases crept in under the third and fourth quarters. Going
forward, I am very confident that price increases would definitely neutralize any inflationary
impact, so it wouldn’t be margin dilutive. The question is whether we can use pricing as a
tool for margin expansion and that is not easy to answer at this stage, but we would be
actively looking at that part also.
Akhil : Okay, but given the fact that there is inflationary cost and everybody increasing
prices, we ...
Sunil Duggal : We will definitely follow. We wouldn’t be lagging behind.
Akhil : No, my point is that then would you see any kind of volume impact in the CCD
category at all?
Sunil Duggal : We do not believe so, because even last year, when in the last few months
where we have increased prices, there has been absolutely no impact on volume, because
these price increases are on the back of stagnating pricing environment over the last two or
three years. So I think there is enough pricing power available today to take up calibrated
price increase without having any impact on volumes. There are certain categories which
are very high priced where basically you know price elasticity, but in our bread and butter
products, toothpastes, hair oil supplements, we believe there is still enough pricing power
available to at least equalize inflation.
Akhil : Okay, thanks Mr. Duggal.
Sunil Duggal : Thank you.
Percy from HSBC : Hello. I wanted to know some details on the Vatika Soap, basically out
of the Rs. 500 crores soap segment, what kind of market share have you been able to
capture, that is one. And secondly, in terms of rupees crores what kind of growth over last
year have you seen in this category, that is my first question. Secondly I would like to know,
I would first like to congratulate you on your wonderful growth in the toothpaste and
shampoo segment and I would to know especially in case of Babool and even in case of
your shampoo segment, there is growth of about 50% and 30% respectively, so what is
driving this spectacular growth. What exactly have you done on the field or what are the
initiatives that have led to this growth and how sustainable do you think this figure is and
how do we see this panning out into the future?
Sunil Duggal : Okay, to answer your first question about soaps, Percy, the soaps portfolio is
now going around two directions. One is the Vatika soap, which was launched two years
ago. The initiative here is to build scale in to this portfolio through addition of variants and
through distribution expansion. So now we have three variants in the soap and of course
one in the offering, which we will launch next. Vatika soap category requires a varianting
strategy to build novelty and excitement. We are looking at substantial growth in this
category. Even though we will perhaps for the long time to come remain a pretty peripheral
player in the overall soaps market, we are in the herbal beauty soap segment, which is
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comparatively small and we don’t intent to go mainstream. So we are looking at substantial
growth in the Vatika franchise soaps. And the second strategy which we are adopting is to
launch more soaps under the Dabur brand, which will have a very different profile, they
wouldn’t be cosmetic beauty soaps, but they would have core ayurvedic heritage and will be
build on the health platform, so that is where the Dabur equity is. We believe that that is a
very exciting initiative, which can yield very good results if we play our cards right. So the
soaps franchise remains important, even though, like I said we do not intent to be
mainstream soap players, but there are enough opportunities available at the periphery of
the whole soap market for us to develop a profitable business.
Would you be able to give me an idea what kind of YOY growth have you had on your
Sunil Duggal : Soaps last year was flat, this year we would be looking at fairly substantial
growth because the new variants which we launched were launched towards the end of the
year, so we did not really see much action in the soaps domain. This year with you know
four variants coming into play, we believe that we can build substantial amount of scale in to
the soaps franchise, but like I said the other initiative which is the Dabur soap could also
prove to be you know very successful.
Percy : Okay and when do you expect this new soap to be rolled out?
Sunil Duggal : In the second quarter.
Percy : Okay.
Sunil Duggal : Now on the toothpaste front, what has driven growth is really two brands,
there is Babool and there is Red toothpaste. Babool of course has grown at a extremely fast
pace, the fastest growing toothpaste brand in the Indian markets. The reason for that is that
the niche which we have occupied which is the herbal economy positioning platform is very
unique, so while you had fair amount of players which operated at the Babool price point,
none of them had a herbal profile to it, so we had a clear positioning advantage over
competitors like Cibaca or like Anchor etc, etc., and I think that has driven growth. We also I
think made full use of a large advertising budget to drive growth and all our distribution
muscle has gone in to this initiative. So Babool has grown by close to 50%. It is still got a
lot of traction and we believe that this is a very good brand which can sustain growth for a
long time to come. The other one which is Red toothpaste grew by around 20%. That is a
very different product. It addresses much thinner slice of the toothpaste market, basically
the people who were toothpowder users and wanted a product which has strong ayurvedic
heritage. So that is a mid price product, it operates in the same price point as Colgate, so it
is not a discount offering, but it is very differentiated and we believe that there is a large
audience which recognizes the need for oral health care through ayurvedic means and
Dabur Red delivers on that benefit. Shampoos again pretty similar story. We are at the
middle of the market, at the Sunsilk price points, little ahead of Clinic Plus, but we again
have a very strong herbal proposition under the brand Vatika and this proposition has had lot
of resilience in the smaller towns and the villages where lot of the growth has come from.
And then I think the growth going forward would be largely variant driven. We have got this
growth largely from two variants. The third one has been launched in the last couple of
weeks, the last month or so. The fourth variant will be launched in the next quarter. So, we
have built a portfolio of five or six shampoo variants, which can I think sustain very strong
growth for a long time to come.
Percy : Okay. Thank you very much sir. I will be back later for follow up question.
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Sunil Duggal : Sure. Welcome.
Nikhil Vora from SSKI Securities : Hi Sunil, congrats.
Sunil Duggal : Hi, Nikhil.
Nikhil Vora : Sir few things, firstly on retail, I understand what you said that we will have
separate forum on this, but just a broad spectrum, you said 140 crores of capex, 350 stores.
Sunil Duggal : 140 crore of equity infusion.
Nikhil Vora : Equity, okay. And there would be a corresponding debt on that, right?
Sunil Duggal : Corresponding debt.
Gagan Ahluwalia : No, no it will be an equity infusion from Dabur India into the subsidiary,
which will float this venture.
Nikhil Vora : Okay and that will venture will the subsidiary also have debt of its own.
Sunil Duggal : Yes that would have debt but not at the initial couple of years. In the first
couple of years this equity will fund the capex requirements, then it would take on some
debt, I think in the ….
Gagan Ahluwalia : In year three.
Sunil Duggal : The third year.
Nikhil Vora : So it has got similarity to the BOOTS venture right. If one looks at the
business model there.
Sunil Duggal : The format is similar, but it will have its own personality and in our case I
think it will be more in the domain of high end beauty care with health care and not really
very health centric, so it will be beauty and health rather than health and beauty.
Nikhil Vora : Okay. And just to get a sense, you know if you just mota mota look at these
numbers, so are we talking about revenue of close to 25,000 per square feet. You think that
Gagan Ahluwalia : We are looking at revenue of around 1700 crores by year five. Hence
the revenue is expected to around Rs. 24,000 per square foot.
Nikhil Vora : Okay. How long do you think will take to breakeven in this business?
Gagan Ahluwalia : See, we are expecting to make a profit in year four. But year three we
should be at breakeven situation.
Nikhil Vora : Okay. Second one on the foods business, you know the sense that I get from
you is that you are saying the margin profile will improve substantially as you move forward.
Sunil Duggal : Over the current year, yes.
Nikhil Vora : Yeah, over the current year, but would that you know, you will change over in
the raw material procurement policy because I would imagine Siliguri transfer from Nepal
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has just about happened now, so is that going to make any material difference on the
Sunil Duggal : Yeah, definitely. We will be reducing our reliance on imports. There would
be more food processing in our plant in Siliguri, which we built a couple of years ago and
then integrated into Dabur Foods, so that would prove to be accretive in terms of margins.
We also expect a fall in prices of particularly orange concentrate, they cannot continue to
remain at current levels, and then we are looking at overall improvement in the mix. We are
deemphasizing exports. We will be in fact cutting that element down substantially. There
will be much higher growth in the branded business. So basically we are looking at margins
which would be pretty similar to what we saw in 2005-06, promotion over that in 2006-07, but
2005-06 margins are something which we can get back to and still have very substantial
revenue growth. So revenue growths will be not very different from what you saw in the
current year, but the focus would be more on margin.
Nikhil Vora : Okay. On the soaps initiative, can I just know the scale of the business right
Sunil Duggal : At the moment it would be in the region of Rs. 20 odd crores.
Nikhil Vora : Okay and that’s been flattish, I would imagine from last year.
Sunil Duggal : Sorry.
Nikhil Vora : That has been flattish from last year.
Sunil Duggal : It is flattish, you are right. But I think we are now get serious about soaps in
the current year with the launch of the new variants and particular with an introduction of the
Nikhil Vora : Okay. But what has been the feedback on soaps itself ? Obviously the initial
tests did do okay and then may be we have not supported the venture significantly.
Sunil Duggal : The customer base is very promiscuous. People shift soap much more
easily than they do any other category. So you have to keep building novelty here, and in
the case of Vatika we have been doing it through introduction of variants, killing some of the
earlier variants which are slow moving etc. We are constantly having churn in this category. I
think we are able to build a much higher level of loyalty through the ayurvedic soap initiative.
If you are able to execute well that could prove to be the more important of the two. I
personally believe that that’s where our competitive advantage would be rather than in
Vatika soap. Even though that is a comparatively smaller category, but if you go by
experience with toothpaste it attract a very loyal type of customer.
Nikhil Vora : Does that actually indicate that it is getting very difficult to build new brands in
category which are fairly exploited, may be inorganic is the only way out?
Sunil Duggal : I mean, the Dabur equity floats very smoothly into the ayurvedic soap, so we
start with the huge advantage, and then if the whole customer experience is going towards
ayurveda and health that is really where you should be at. So I personally believe that that
could be out of the two initiatives the stronger one.
Nikhil Vora : The Pakistan plan, can I just have some statistics on that?
Sunil Duggal : We did around Rs. 20 odd crores in the current year, Rs. 20-25 crores. Next
year we should be looking at close to 50. It is one of our fastest growing markets, we are
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pretty happy with the experience there. We are now actively looking at localization of
manufacturing. We have build a very strong team there and that is really the most difficult
part. So the Pakistan business is one of the stars in our international constellation, Egypt
and Pakistan are the two very good performing markets, but the good thing in international
business is that the comparatively saturated markets of the gulf are growing at a very high
pace and that is leading to substantial margin improvement in international business, while it
is still much lower than the domestic business, it is catching up, and if the gulf business
continues to go at that pace we should see the international business margins converging to
domestic business in the next 2-3 years.
Nikhil Vora : On Pakistan what are the categories that we are pumping in right now.
Sunil Duggal : Hajmola is the biggest brand there. It has traditionally been very strong but
we have improved our distribution and supply chain, so the growth continues to be very
good. We are also now doing all the variants, both the Imly and the Mango variant that has
evoked very positive response. The next big brand is Amla, and now we are looking at the
shampoos and toothpaste we have recently launched, the toothpaste called Meswak, which
we launch in Pakistan, and shampoos are also looking very promising. So the portfolio there
will be built on these four brands and there are smaller offerings which would be not
advertised, but these are the four heavily advertised products which Pakistan has.
Nikhil Vora : Just lastly, some of the categories rather brands which have grown, have they
grown on the back of distribution gains, like for example Odomos, where clearly our
strengths of Balsara was not significant in distribution, would it be fair to presume that or we
are reaching more steady state?
Sunil Duggal : Yes there were distribution gaps, but I think Balsara distribution gaps were
more or less filled up in ‘06. There was not too much delta which we got, but I think as part
of our overall reorganization, we have got good growth from modern trade, we have good
growth chemist, because we have build separate lines for these two types of customers. So
you see very good growth in supplements, Chyawanprash, Glucose, I would attribute a lot of
that to better distribution through chemists. Likewise, modern trade distribution also has
improved considerably. But again it has been only partly through distribution and certainly
not the single most important driver of growth.
Nikhil Vora : Lastly, just back on retail, this entire modeling on the line of Boots, you think
we have right now enough product categories, either on our own or through franchise route
or distribution route to fill up a 2000 sq feet store profitably?
Sunil Duggal : Yeah I mean for Dabur portfolio that would be only a small part of the whole
Nikhil Vora : No, overall, I am saying.
Sunil Duggal : Yeah of course they would be at substantial import component here and
again we are looking at the higher end of the market, both in health and beauty care. There
is enough product here to fill up a 1500 square foot type of store which is really the base
model. So we are not looking at very large formats, you know it is 1500 square feet, there is
enough products available to fill it up and more. It would have a high import content. A lot of
the capabilities which we have in this venture are in the domain of sourcing, people
understand this space very well, and we are pretty confident of getting in a whole lot of
products which are not currently available.
Nikhil Vora : Okay great, thanks a lot Sunil.
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Sunil Duggal : You are welcome.
Vandana from DSP Merrill Lynch : Hi! A few questions on the hair oil business. You
mentioned that the 4th quarter was spectacular quarter in terms of growth rates. What led to
a very strong 4th quarter? And also if I look at your historic trends, typically if you have one
year of very growth in hair oil, next year tends to be a slightly slower growth and again you
have a year of good growth and generally tends to be a very low kind of growth trend. So
given that FY07 was a very strong year for hair care, first of all what was the driving factor
and what is the outlook for ’08? My second question relates to the foods business. You
mentioned that margins would get back to ‘06 levels, but I am just wondering that given that
you want to do ready-to-eat foods which would require a pretty big advertising push
depending on how big you want to get in that category, so with that in mind do you think
there is still possibility of a substantial margin increase? My third question relates to capex.
What is the total capex number you are looking at in FY08 taking in to account the equity
investments in retail, the stuff that you said in UAE you are building? And the last one
relates to the other income. Is there any sale of investments of the some of non-recurring
part in your income for ’07?
Sunil Duggal : Okay that is a long list of questions. Coming to hair oils first. We posted a
growth of 13% which is strong but I would not say spectacular, fourth quarter at 21%
perhaps was not a sustainable growth. The key driver here was improved performance in
Vatika. So the last couple of years Vatika has not grown at all in some cases, it has actually
de-grown. So Vatika grew 9% which kept the whole performance of the hair oil portfolio
robust. Amla is a pretty steady 11-12% type of brand, and then we have a smaller brands
like Anmol Mustard which grow at a much faster pace. So I think 13% growth is something
which is conservative but at the same time something which we can build into our budgets.
So I would look at growth of this level going forward and I do not see too much of yo-yoing,
this could be just bit of a coincidence, but there is no pattern as such we detect in terms of
customer behavior, perhaps many years ago if there was excess selling in March etc. that
could lead to lower sales in April, but that has stopped for a long time to come. So I don’t
see any reason why we can’t grow at 13% odd next year, and I think we are also poised to
take up prices in hair oils, amongst all the categories hair oils will probably witness most
price increases, so that could also push up the growth rates. So in the case of the capex
Gagan Ahluwalia : Vandana, we are planning capex of about Rs. 35 crores in Dabur India.
Out of this 25 is on manufacturing and about Rs. 10 crores in IT and miscellaneous and
corporate. Then Rs. 10 crores is expected to be infused into the retail venture, and about
Rs. 36 crores for our overseas investment in Ras Al Khaimah. So this adds up to about Rs.
Sunil Duggal : Rs. 35 crores is budgeted, I suspect there would be some over run into the
first quarter of next year. I would peg it at around Rs. 25 crores even though we have kept a
Rs. 35 crores provision in our books. So total it would be in the region of Rs. 70 crores for
the consolidated business.
Now on the foods, you mentioned that ready-to-eat would quite an upfront investment and
you are right, but it will not witness a lot of activity in ready-to-eat in the current fiscal. Lot of
perk on that would be happening but you will probably see product launches sometime in the
next financial year. And also in terms of capex we don’t see big investments, because we
intent to outsource most of the products. So the investments would be really in A and B and
perhaps in distribution and cold chain and whatever else is required but not in
manufacturing, but again you will not see a lot of that happening in the current year.
Vandana : Okay and what kind of ready-to-eat foods are you thinking about?
Page 11 of 25
Sunil Duggal : Still being discussed. We are looking at various possibilities in ready-to-eat.
It would be not ready-to-cook rather than to ready-to-eat means that part of the business is
more in sync with Indian pace. So we will be looking at something which makes the cooking
experience easier and more pleasant rather than something which we pop in our microwave
and eat. But it is early days yet, and I think we will be spending most of the current year in
fine-tuning the product mix and also acquiring capabilities.
Vandana : Okay and my last question relates to the other income part. You have got some
Rs. 26 crores of other income in ‘07. Is this just normal treasury or is there any kind of one
Gagan Ahluwalia : Yeah out of this Rs. 26 crores only about Rs. 6 crores is something
which is one time.
Vandana : Okay, and what is it on account of?
Gagan Ahluwalia : And this Rs. 4 crores came as a gain from sale of a unit at Dabur Gram,
and Rs. 2 crores came from sale of some long-term investments. Rest is all business
Vandana : Okay, and which quarter does this come in, was it 4th quarter also?
Gagan Ahluwalia : No, it was I think mainly in Q2.
Sunil Duggal : The sale of the investment really took place in the 2nd quarter. The rest can
be equated more or less equally.
Vandana : All right, thank you so much.
Preeti from KR Choksi : Hello sir. This is Preeti. I had a few questions on your volume
growth. The first one is how much was your volume growth in case of hair oil?
Sunil Duggal : We had a 13% revenue growth, out of which volumes, Amla was 6.5, Anmol
was 41, Vatika was 7. So this gives a flavor, we have not got the aggregated numbers here
Preeti : Sir how much would be the average volume growth in case of hair oil?
Sunil Duggal : Yeah in the case of hair oil, let say out of 13% total you would attribute
around 9% to volume.
Preeti : Okay, and how much would be that for shampoos?
Sunil Duggal : Shampoos we grew at 35%, which was almost entirely volume, because you
know a lot of the shampoos at Rs. 1 sachet, there was no price increase. So I would say
that 90% of this would be volume.
Preeti : Okay 90% was volume. Sir can you give us this figure for toothpaste also?
Gagan Ahluwalia : In oral care total oral care category, value growth we have reported at
16.8%, out of that 12% was volume.
Preeti : Okay, and how much was the industry growth in case of oral care?
Page 12 of 25
Gagan Ahluwalia : The ORG numbers data shows a growth of about 12% in this space
Sunil Duggal : You should take Nielsen data and you should take Dabur Nielsen numbers
also, so then only you are looking at like-to-like.
Gagan Ahluwalia : As per ORG Dabur is showing a 29% growth.
Sunil Duggal : We are 29% as against category of around 12.5 to 12.3. So you have to
take like-to-like, either take all Nielsen numbers or only Dabur numbers.
Preeti : If I have to take only Dabur number, then the toothpaste grew by 29% for Dabur.
Gagan Ahluwalia : Yeah, for the all the three toothpaste aggregated together, we grew at
29%. The volume growth is 29.
Preeti : Okay, and sir how about the tooth powder category?
Gagan Ahluwalia : The powder category as per Nielsen shows a growth of around 11% and
we have grown at 14%.
Preeti : Sir is this only volume driven, or there were some price hikes also?
Sunil Duggal : In the case of Red toothpowder there was very marginal hike of around 3-
4%. Most of the growth has been volume driven in the last year, because the price increase
was taken largely in 3rd and 4th quarter, that is when inflation really hit. The first two quarters
were pretty comfortable with regard to inflation. October we began to feel the inflationary
pressures that is when we began to look at price increases and then there is a lag between
the time you decide on price increases and the time they hit the ground, there is always
stock of labels etc. of the old MRPs. So the full impact of price increase began to be felt in
the 4th quarter.
Preeti : Sir you have just mentioned about the hair oils that you see at least 13% growth, is
this sustainable. Are you mentioning this about the volumes or?
Sunil Duggal : Well, I am talking about revenue growth, 13%, this is the large category for
us, so 13% growth is pretty steady one. We believe it is possible, we did last year, we
believe it is possible in the next year. This is revenue but again the mix would be
substantially towards volume, and in the event of price increases of extraordinary nature in
hair oils, which I would not rule out, then the growth would be higher than this. We are
looking closely at possibilities of fairly decent price increase in hair oils. We have not had
disclosure on that but in the next couple of weeks we will take a decision.
Preeti : Okay sir how much do you see the shampoos category could grow, what would be
the sustainable rate?
Sunil Duggal : You are talking about the category?
Preeti : Yes.
Sunil Duggal : Well I think the category should grow in the region of 15-20%. It is still fast
growing, it is still under penetrated, there is lot of headroom here. We should grow ahead of
category, we should grow in the region of 20-25%.
Page 13 of 25
Preeti : Okay, and how much about the toothpaste category, what could be the sustainable
rate for the industry and how much is Dabur intend to grow at?
Sunil Duggal : Toothpaste at least according to Nielsen data, is a very volatile category, the
growth rates fluctuates tremendously, but I think something like a 10% growth in category is
what we expect. We should of course grow ahead of this. So we should be looking at
growth in region of 15% odd.
Preeti : Okay. Sir besides orange concentrate, which other raw material witnessed a very
sharp increase in prices?
Sunil Duggal : Well sorbitol, plastics, then honey particularly, gold, LLP, you know there are
assortment of products which witnessed pricing pressures.
Preeti : Do you see a similar trend in the next year also?
Sunil Duggal : Quite frankly no. I think inflationary pressures would ease. Government is
a) doing a lot b) the appreciation has made them cheaper. So overall, I think the inflationary
pressure because of political consideration or economic consideration would be much less
severe than what we saw last year, and like I said we are very confident that we have
enough pricing power to neutralize any inflationary pressure which would come up.
Preeti : Okay and sir in that case do you think that we can maintain the EBITDA margins at
this level or we should see an increase in the next year?
Sunil Duggal : We are very confident of maintaining this. Question is that do we have
pricing power to enhance margins, and I would not like to take a final call on that, we will
explore that possibility, but maintaining of margins in the current levels, I see no reason why
that should not happen.
Preeti : Sir couple of questions somebody has asked about hair oil and supplements and all
that. There are certain categories in which price hike can be taken.
Sunil Duggal : Yes hair oils we believe it can be taken, there are inflation happening, there
is upward movement in key raw material prices, so that is one area which we are looking at,
not so much supplements. In any case supplements we have already taken up price of
glucose where sorbitol which is a key raw material witnessed very sharp increases, so we
took up prices of glucose very sharply, but glucose is summer products so whatever price
we have taken it is now history. In case of supplements which kick in like Chyawanprash
that is more winter centric, so we are not in a hurry to decide on any pricing strategy at this
point with closer to the season, but I would rule out price increases in supplements too, but
hair oils I am sure it is going to happen.
Preeti : And sir my last question is related to the ad spend, do we intend to continue with
this ratio of A&P to sales?
Sunil Duggal : Definitely, we see no reason why this A&P ratio will move below 11% or go
ahead of 12%. At this point in time we are still looking at the 11 to 12% band.
Preeti : Okay, thank you very much sir.
Sunil Duggal : Thank you.
Mahesh from Edelweiss : Good afternoon Mr. Duggal.
Page 14 of 25
Sunil Duggal : Good afternoon.
Mahesh : Congratulations on a good set of numbers.
Sunil Duggal : Thank you.
Mahesh : My question is on international business, can you tell us the split of the
international business category wise, I mean how much is hair care, how much is oral care,
and also which are the categories that are growing in the international business?
Sunil Duggal : See at the moment the international business was largely hair oil driven in
the past, around 80 to 90%, 5 years ago 90% of business was hair oil. Now, obviously that
mix has been shifting and now we have a very strong shampoo’s business. We have very
strong hair creams business, good oral care portfolio, shampoos are picking up. It still
remains hair care driven, so I would put the number of hair care to be around 60% of the
mix, and the balance around 20% comes from healthcare products, and 20% comes from
oral and other personal care areas, but the whole dependence on hair oils is now reduced
very sharply. We have had a great success in say hair creams in the GCC markets in Egypt
which actually is a much higher category than hair oil, so that gives us confidence that we
have a lot of headroom here to grow. Vatika hair cream has been unqualified success in
Mahesh : This 20% when you talk about the healthcare is it the consumer healthcare or is it
the health supplements?
Sunil Duggal : No, there is very little of consumer healthcare which goes into overseas
markets, because those are mostly under regulatory regime, so you know ayurvedic
medicines are very hard to put into international markets, so this is almost zero in consumer
health sales overseas, in overseas sales of a consumer healthcare portfolio, it is mostly the
healthcare portfolio which sits under CCD, you know Chyawanprash and stuff like that.
Mahesh : Okay and which are the criterias growing I mean fast in this?
Sunil Duggal : It is different in different markets, for example, in the gulf like I said we have
very strong growth in hair creams. In Nigeria we have very strong growth in toothpaste. In
Egypt hair oil portfolio continues to dominate. So you would have to take a country view. It
is hard to aggregate. All I can say is that the business is growing at around 30 to 40%, so
obviously most of the categories are growing.
Mahesh : Fair enough.
Sunil Duggal : I think in the case of healthcare we still have not really done much work
overseas because our focus was more on personal care, so may be the next driver of growth
would be health supplements and products of this type.
Mahesh : Okay and also can you give us an idea of how much the margins can improve in
international business since two factories come up there, once the factories that you are
setting up in Ras Al Kheima ?
Sunil Duggal : See the factories will not be a huge source of margin expansion, a lot of that
would come from scale as a business now gets into the 300, 400, 500 crore type of orbit
your costs are not going to move up that fast. The plants are really to enhance capacities.
Our business is growing fast and we are running out of space in our existing set ups, so
therefore it is invest capex is required and we are putting most of it in Ras Al Khaimah which
Page 15 of 25
will be a most modern and largest plant overseas. So the margin expansion would come (a)
from better mix and (b) from higher scale.
Mahesh : Okay, I mean the idea was that you have currently factory in Dubai I think you
know which is an expensive area and once you move to the new factory the expenses will
be much lower?
Sunil Duggal : Yeah Ras Al Khaimah is the much lower cost environment than Dubai, Dubai
is a very expensive place now. So overall the cost reduce there. So we will prefer to set up
the new plant in Ras Al Khaimah rather than Dubai. We had an option of staying in Dubai
too but we decided to go in other place. But that would be largely in the area of factory
overhead etc., It wont have a big impact on raw material cost, which would be pretty similar
whether we will make it Dubai or RAK.
Mahesh : Okay, my other question is on the consumer health business, I do not know if I
have missed this but there is very low growth in fact a flat growth reported for the consumer
health business this quarter. Can you tell us the reason?
Sunil Duggal : Yeah, I think we have reengineered consumer health division, we are looking
at now leveraging very substantial CCD chemist platform to the advantage of consumer
health division. So I think when consumer care division has built a distribution vertical
around the chemist line we need to use it for consumer health, I think that will be a big driver
of growth. The scale of CHD makes distribution a weak point, and a 15 odd crores business,
so having a natural footprint in terms of distribution is never easy with that size, so we are
looking at now extracting synergies by our CCD, a few years ago if you remember we
integrated our personal healthcare business into a single entity called CCD which provided a
lot of scale and got advantages. We are looking at something similar happening in CHD,
and we believe that would be a big driver of growth as far as the OTC portfolio is concerned.
Mahesh : What is your outlook for growth in this, I mean any rough estimate?
Sunil Duggal : We would be looking at growth in the region of 15 to 20% for consumer
Mahesh : Okay, thanks a lot.
Sunil Duggal : Welcome.
Mahesh : That is it from my side.
Singh from Citigroup : Yeah, hi Sunil.
Sunil Duggal : Hi.
Singh : Well most of my queries have been answered but just two questions; one on the
digestive side, although you have seen Hajmola growth recover over the last few quarters, I
think Pudin Hara is probably still drag on the overall growth.
Sunil Duggal : That is true.
Singh : Is there anything which has been done to address that or can we you know take a
view that structurally Pudin Hara would probably remain a low growth category?
Sunil Duggal : We have a huge problem with regard to spurious Pudin Hara, it is a product
which is very easy to replicate, and since it is so distinctive looking, I am talking about the
Page 16 of 25
Pudin Hara pearls, it is very easy to pass off, and most of the franchises to Pudin Hara is in
the rural area where unfortunately people cannot distinguish between the genuine article
and the spurious ones. We believe that the single biggest cause of Pudin Hara decline is
the spurious product. Now all we can do here is to increase our entire initiatives as regard to
anti piracy and raids and catching of the spurious manufacturers. We have done a lot of that
in the current year and we need to accelerate that. But the outlook on Pudin Hara from that
perspective is not very bright, so we will have to obviously find new drivers of growth from
the Hajmola franchise and we have done a lot of work in Hajmola both in the confectionary
domain, Hajmola candy, as well as in the regular Hajmola, a new flavor has been launched
both in candy as well as in Hajmola. We are looking at a multitude of flavors and other
formats in Hajmola. So even if Pudin Hara continues to decline, I think we will be able to
manage the decline through much better performance in Hajmola. But I think in the current
year we seem to have now bottomed out and I think we will no longer see further erosion of
the Pudin Hara franchise; we should be able to maintain it. It is not a huge brand, so it is not
something which is a drag on overall performance too much.
Singh : Sure, see second question is on the home care side, you were looking at some
aerosols under the Odomos brand, you are looking to expand the portfolio, can you throw
some light on you know where you are and you know what can be expected going forward?
Sunil Duggal : See Odomos is very strong brand. It is generic to the personal applicator
space, so we believe that there is lot of value which we can extract in terms of mainstream
insect repellents, which is what we are doing in the form of coils, in the form of aerosols,
vaporizers, etc. There are huge distribution element which comes and I think our distribution
particularly in the north and the east presents us with a great opportunity, so that is a pretty
straight forward leveraging of the Odomos franchise into mainstream insecticides. But a lot
of work will happen both in air fresheners and in the new surface-cleaning brand, which we
are developing. So, air fresheners you will witness a lot of activity in the form of aerosol, in
the form of solid fresheners, in the form of our car fresheners. A lot them will be outsourced
from abroad and we are developing a sourcing strategy for that, but the next growth driver
here would be surface cleaning and we are looking at many options in this space.
Singh : Can you explain this one maintenance question, your tax rate is around a 11%-12%,
would one assume a similar rate going forward?
Sunil Duggal : Yeah I think so. I mean there will be, it would creep up marginally, like we
have witnessed it creeping up in the last two or three years. But I think, as far as our tax
planning goes we would be under MAT for the foreseeable future, I think up to 2015 or sort
of thereabouts. So, there is not going to be no major issue on the tax front. But I suspect
the MAT rate would witness slow growth.
Singh : Understood. Okay, thanks a lot Sunil.
Sunil Duggal : You are welcome.
Huzaifa from Morgan Stanley : Hi Sunil. How are you?
Sunil Duggal : Hi Huzaifa.
Huzaifa : Couple of questions; and the first is if you look at financial year 2007 in retrospect
and that in the consumer care division, this division was growing at 7.5% and 4.5% in the
last two years and suddenly it inflected to about 15% plus growth this year. What do you
think are the key, for all the business segments have grown far, but from a division
perspective is it a base effect which is bought up or do you think something structurally
Page 17 of 25
changed with in the company that you have done which is causing that. Can you just
expand on that?
Sunil Duggal : I think (a) we have been able to capture good growths, but there has been
overall growth in terms of category, in fact if you see last year vis-à-vis the earlier years and
you would see definite improvement. So, we have been able to capture that and then lot of
growth here would be attributed on that. But in addition, we have built a very strong team
now in consumer care, induction of a large number of people and also fine-tuning our
distribution system. We earlier on had a distribution system in which the same unit went
through the modern trade to chemist to groceries to whole sellers. Now we have different
verticals. We have around five verticals split in our distribution and we have invested
significant amount of money in that. So I think that also has proved very, very important.
The third thing is the growth which we have seen in key areas like toothpaste and shampoos
and also in hair oils, which I think has been more marketing driven, good quality of marketing
inputs, good product delivery, good positioning platforms, so combination of better capability
in the form of people, better quality of distribution in terms of structure and better execution
in the form of marketing.
Huzaifa : Okay, perfect. My second question on Chyawanprash. I don’t know whether you
have the data readily, but would you know the growth of the mother brand Chyawanprash
and the new variants, and what percentage of sales now comes from the variants of
Sunil Duggal : Variants are still very small, so we will just give you the numbers for the
Gagan Ahluwalia : Mother brand in Chyawanprash grew by 20% full year, value growth.
Huzaifa : So, the entire growth has come from the mother brand itself.
Sunil Duggal : 20.4%.
Gagan Ahluwalia : 20.4%. Then the other variant I think Chyawan Shakti was around 4-4.5
crores during the year, and Chyawan Prakash is still in a test launch stage, so it us not very
Sunil Duggal : The real activity on this variants and this is the fourth variant which we have
just introduced you will see it on the shelf in a couple of weeks, which is a product called
Chyawan Jyoti aimed at youngsters, it is a chocolate-based herbal supplement, very
interesting product, which we will soft launch and test launch over the next 3 to 6 months
and then see whether it has relevance for a full fledged launch. So, now you will have four
variants of Chyawanprash, but we expect the mother brand to still grow at a double digit
pace. But the aggregate growth of the Chyawanprash franchise should be very strong, even
if couple of these three variants click.
Huzaifa : Okay, if you have bigger 3 to 4 year perspective, what do you think the variants
will contribute to the overall Chyawanprash brand equity?
Sunil Duggal : I think over a 3 to 5 year or let us say more like a 5-year horizon, they
should contribute something like 1/3rd, 25% to 1/3rd of the overall Chyawanprash franchise.
Huzaifa : And what is it today?
Sunil Duggal : At the moment it is negligible, because out of that 173 crores of
Chyawanprash we have only 5 crores of variants.
Page 18 of 25
Huzaifa : Coming to shampoos, you mentioned that a large part of the growth came from the
one-rupee sachets. I think if I get my memory corrected, you launched these shampoo
sachets about 18 months back, right, the one rupee sachet?
Sunil Duggal : Yes.
Huzaifa : Okay, so what percentage of the growth in shampoo came from the sachet for you
Sunil Duggal : See, sachet represents 70% of the shampoo franchise. So, a lot of the
growth obviously came from that. But even the bottle grew at around the same pace as the
sachet, but you know it was really the sachet which drove growth. Now earlier on our focus
was more on the 2-rupee sachet, but the markets started shifting towards the 1 rupee.
Earlier on it was discount segment, it was shifting to 1 rupee then even the quality brands
began shifting. So, we took a plunge earlier on, let’s go hell bend on the 1 rupee platform.
We did our numbers and margins were coming actually pretty attractive here, so there was
no reason to put back. So at 1 rupee the sachet was a big hit, because Vatika had very
premium imagery and at a 1-rupee price point there was a huge amount of consumer
Huzaifa : Do you think that similar kind of growth can be repeated in shampoos without the
one rupee kicker?
Sunil Duggal : It is hard to you know stick your neck out and say that I can grow again at
40%, so I would not, we obviously won’t budget 40% growth, but could happen.
Huzaifa : And my last question is on the exports.
Sunil Duggal : In the overseas sale.
Huzaifa : The international business.
Sunil Duggal : Yeah, international business.
Huzaifa : You mentioned that you are going to enter some new markets in the Middle East
and North Africa. Can you share which new markets and how significant would they be over
the next three to four years period?
Sunil Duggal : Yeah, again new markets while being important would not be pivotal to the
growth of international business, but the markets which we have made a good impact,
Morocco, Algeria, Yemen and markets of East Africa: Kenya, Uganda, Tanzania and I am
not including Nigeria etc., here because those are our focused markets. These are markets
where we had marginal, which we call opportunistic markets, where we just have a
distributor and we put them into the rank of potential markets. Also we had good business in
Iraq, this has emerged as a fairly decent market for us. So, Iran, Yemen, Morocco, Algeria,
East Africa have been really the emerging markets in the current year and we believe that
there is still lot of headroom in these markets.
Huzaifa : I am not very sure whether this question is asked earlier, but just one last question
from my end. I am sorry for this. On acquisition front, was it discussed earlier?
Sunil Duggal : No, it was not discussed. Nobody raised that question so far, pleasantly
Page 19 of 25
Huzaifa : So, you want me to not raise the issue, I will not raise it.
Sunil Duggal : Your choice.
Huzaifa : I just wanted an status update on Unza?
Sunil Duggal : I can’t give you any update because you will understand the reason why.
Huzaifa : Okay, perfect. Thanks.
Percy from HSBC : Hi, my question was regarding Unza too, so I think that is already
Sunil Duggal : Okay, but you guys will be first to know if there is any development.
Abhijeet from Prabhudas Lilladher : Can you speak a little bit louder?
Abhijeet : Yeah sure. Congrats on your good sets of results.
Sunil Duggal : Thank you.
Abhijeet : Just wanted to know one thing, what was your exercise duty for the full year?
Gagan Ahluwalia : 36 crores.
Sunil Duggal : I think I anticipate your question. There have been no incremental excise
benefits in the last fiscal vis-à-vis 06-07. So, there has been no additional margin expansion
due to movement of products into excise free areas, that whole benefit was captured in 05-
Abhijeet : Okay. And sir this was regarding your Nepal operations, what I understand is
about 80% of your foods are manufactured in Nepal.
Sunil Duggal : Well now it has dropped to around 60% with the expansion of facility in
Dubai, and we intend to reduce our dependence on the Nepal progressively. We are
building a strategy around derisking Nepal. So while Nepal would continue to be very
important in our scheme of things, we are (a) either looking at relocating manufacturing to
India, or (b) having backup facilities in India which mirror manufacturing in Nepal in the event
of temporary locations from Nepal.
Abhijeet : Okay, so, if during FY08 Nepal would consider what, about just come down to
about 30% to 40% from 60%?
Sunil Duggal : No, no, no, those things we have still to discuss it, because there are capex
issues which could be pretty high. So, that strategy is being built, it will probably be
executed only towards the fag end of the current year. The current year our dependence on
Nepal would be still to the extent of 60% odd of our portfolio.
Abhijeet : Okay, and sir what was the volume growth in your total sales growth for the year?
Sunil Duggal : Around the 30% in foods, 28%.
Gagan Ahluwalia : In food are you asking?
Abhijeet : I am talking, sorry, for the total portfolio.
Page 20 of 25
Gagan Ahluwalia : See, out of 17.6% what we have reported for consolidated business,
about 3 can be attributed to price change, 3%.
Abhijeet : Okay, 2.5 to 3% would be price change.
Sunil Duggal : I would say 3-4% through price change, balance is around 13% volume,
which is a good thing because that shows the growth in category. This year could be a little
different. You may have a little bit more pricing power this year, it is largely on account of
price increase which were flagged off in the last part of previous year and full impact of
which has been felt this year.
Abhijeet : And what would be your outlook on the raw material price trend, overall raw
material price trends?
Sunil Duggal : We see overall, we have done the numbers and our procurement guys
believe that inflation this year would be more or less what we witnessed last year. Hopefully
they will be right, so inflation will not be as bigger a monster as the monster previous year,
but like I said earlier in the presentation that even if there are inflationary pressures there is
enough pricing power available to completely neutralize those. So, I don’t see any margin
erosion consequent to inflation.
Abhijeet : Okay, so your price increases would be mainly directed towards neutralizing …..
Sunil Duggal : Neutralizing, I think that’s the philosophy which we have been following,
broadly, of course, in some areas we have been doing strategic price increases or
opportunistic price increases, but broadly price increases are there we have taken a pretty
good margin, so there is not you know a huge desire to compromise volume growth by
taking up prices and expansion of margins. So, we still remain very volume focused. We
believe that if you are sitting on gross margins of 42-43% the volume growth should really
drive the paramount and margin would follow.
Abhijeet : Right. And sir from a 4 to 5 year perspective, which categories would you mainly
focusing on for the sustained kind of growth?
Sunil Duggal : Our internal structure is such that we give focus to every category, otherwise
we don’t play in that category. So whether it is food or whether it is home care or hair, oral,
health supplements, every category would be resourced, every category would have a new
product introduction agenda, and then the rest would depend upon performance. Some
categories would perform better than the others and grow faster, but the focus is on all.
Abhijeet : So in your total overall portfolio what could be the contribution of old products to
the total growth and new products? I am talking about the total portfolio.
Sunil Duggal : We describe new products which are launched in the present or previous
year. That is our definition. And we believe they contribute around 8 to 10%.
Abhijeet : Okay. So it would be around 8-10%. This is last question. Do you think the
quarter ad spends were mainly focused in which category, I would presume it was mainly the
Sunil Duggal : All, I don’t think there was due change in terms of ad pros across the
businesses or categories. So, while there was some shrinkage in the ad pro in Q4 there was
no pattern as such that the shrinkage came only in one or two categories, it was totally
replicated all across.
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Abhijeet : Okay sir.
Sunil Duggal : My mistake sorry, shrinkage was last year, and this year there was actually
expansion by almost 200 basis point expansion in ad spend. I think it was all, but perhaps a
little bit more in CCD
Abhijeet : Okay, within CCD it was more on hair care.
Sunil Duggal : We did some new products introduction in the fourth quarter, I think they
took up a fair amount of spend.
Abhijeet : Okay sir. Thanks a lot.
Sunil Duggal : You are welcome.
Vijay from JP Morgan : Sunil actually you can help us in accessing the competitive
scenario and you know will you be able to maintain the outperformance in certain categories
or you know you will probably be in line in certain categories. How do you sort of see that in
foods and consumer care?
Sunil Duggal : See the competitive scenario has not substantially altered over the last many
years and I don’t believe it will change very radically also, because all the key players are
here and in full force and they have been here for such a long time. So, there is no
paradigm shift which is happening in terms of the competitive environment in FMCG. You
will have players who will perform better than the others, categories which would witness
more churn and more intensity than others, but we play in the same domain as many of
these companies, I think what is heartening is the two most ultra competitive areas,
shampoos and toothpaste, where the quality of the competition is of the highest level, we
have outperformed out-executed everybody else. So, the competition is something which
we have learned to live with.
Vijay : You would remain confident of outperforming that again?
Sunil Duggal : Yeah we are pretty confident. I think we have a larger number of growth
drivers than perhaps any other company. So, in any year its one or two on fire like say
consumer health is on fire, a plenty of others which do. So, our business model is in a sense
more insulated from competitive factors, environmental factors than perhaps any other
Vijay : Okay, thanks.
Sunil Duggal : Then we have the international business, which you know has literally the
whole world as the playing field. Many companies don’t have that advantage of having a
strong international presence.
Vijay : You know we have seen too many entry of new players in foods you know that sort of
growth, you will still be able to sustain that sort of growth level?
Sunil Duggal : We really believe so. We have by far the strongest brand, clear leadership
position in food, beverages, no reason why we can’t further expand on that. The interesting
challenge before us would be the ready to eat or ready to cook, and if we are able to do a
good work there I think that would build platform for sustained growth because our beverage
portfolio would certainly keep growing, but if we have another driver of growth which is
culinary and ready to eat that would make the whole foods portfolio robust and we will also
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be you know saved from these cyclical input cost increases which you witnessed this year
which eroded margin.
Vijay : I had one more question, you know you had identified south as an important driver
for you, how have you taken that strategy further?
Sunil Duggal : South has been growing ahead of the rest of the business. I think we now
need to get in the next level of growth, which is to introduce south specific products, and that
is something we have done with one introduction called Swas Amrit, which is asthma
regulator. I think we need to further develop more products which are in that same line. So,
we have had special emphasis and focus on south, that would continue. At the moment it is
still only 10% of the business, but we expected to grow to around 15% in the next 5 years.
Vijay : But anything special in the current year that one can expect?
Sunil Duggal : Definitely. You would look at (a) completely new set of communication
which is south centric, so we are looking at models from the south, celebrities from the
south, packaging which is very different form what you see in the north, that’s the easy part.
But the next level of growth like I said would be through introduction of products for the
south, which then perhaps can be seeded in the rest of the country but have completely
southern ethos in terms of how they are create.
Vijay : Okay, thanks.
Preeti from KR Choksi : Hello sir, this is Preeti again.
Sunil Duggal : Hi Preeti.
Preeti : Sir, this is regarding your Dabur Foods, can you tell us how much would be the size
of this Hommade brand?
Sunil Duggal : Hommade is still small. We have mainly focused on Hommade deliberately
for the last 3-5 years. So, Hommade would be around 10 crores, but it’s not advertised top
float. We have a good business in terms of vegetable concentrates, tomato puree, coconut
milk, etc., but it has not got into the value added segment. So, the value added segment
which would be perhaps ready to cook products we would either launch them under the
Hommade franchise or may be some other brand, and that would really make this portfolio
much better than what it is today.
Preeti : Are there any specific reasons why this particular brand is not promoted?
Sunil Duggal : I think the only reason is that we were concentrating resources in our
beverage business. The beverage business has a very high capital intensity and you have
to make sure that your returns on that investments are good. You have to grow the
business and expand margin the business at a very fast clip. So, rather than to fragment our
sales we have just in foods lets be a beverage expert till we have gained a certain critical
mass, which we have now, and then look at culinary. We took a call many years to go on
this, and I think it was a right thing to do, because if we had entered culinary two three years
ago, where it was in its infancy, we may not have got the necessary returns and may have
taken our attention away from this business.
Preeti : Sir, what would be the volume growth in the beverage segment?
Gagan Ahluwalia : Volume growth is around 32% or so for Real and Active was a bit lower.
So, I think average volume was also in the range of around 25% or so.
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Preeti : And was there any price hike?
Sunil Duggal : There was some, not substantial.
Gagan Ahluwalia : Again in the range of 5% to 7%.
Sunil Duggal : Yeah.
Preeti : Okay, and are we growing ahead of the category?
Sunil Duggal : This year we kind of made up the category growth.
Preeti : What would be the category growth?
Sunil Duggal : In the case of the fruit juices it would be in the region of around 10%. The
category growth slowed down in the current year, a little bit. I am talking about the juices.
Then there was more growth happening in the lower end, the nectars and the fruit drinks,
there was higher growth happening there.
Preeti : Okay, so what kind of growth rate do we expect for this year?
Sunil Duggal : I think Foods should be in the region of 30 odd percent, 30 would be what
our internal benchmarks would be. So, hopefully we will be able to achieve them. But that’s
the kind of growth that can generate, but still got a lot of headroom.
Preeti : This would be purely volume growth?
Sunil Duggal : It could be a combination of mix, pricing and volume, so it will have element
of all three.
Preeti : Okay, thank you very much sir.
Sunil Duggal : You are welcome.
Abhijeet from Prabhudas Lilladher : Yes, sir, what I have been seeing during the quarter
and for the whole year as well is your other expenditure has been declining, which is I
presume because of higher scale?
Gagan Ahluwalia : As a percent of sales, yeah, it is declining, and that’s because of scale
Abhijeet : What has been the other expenditure?
Sunil Duggal : These are basically coming down on overheads in terms of the factory
overheads coming down, in terms of the general overheads all coming down.
Abhijeet : Does that come down substantially?
Sunil Duggal : Yes it had come.
Gagan Ahluwalia : As a percent of sale, other expenses have like come down from 13% to
Abhijeet : That’s mostly a scale.
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Gagan Ahluwalia : No sorry from around 23, it’s around 23% for consolidated business, for
Dabur India standalone it has come down.
Abhijeet : Hello.
Gagan Ahluwalia : From 22.4 to 22.1, marginally.
Sunil Duggal : Is there any specific expense side, which you are looking for or the overall?
Abhijeet : No, no just the overall other expenditure part I want. I was getting about 23.4,
21.7 it has come down from 23.4% for the quarter. Any ways, but what the trend is showing
towards a declining trend. So just want to know whether any strategies were there for that?
Sunil Duggal : No, I think it’s just a contingent on the growth in the business, spread your
cost over a larger base. See we have invested a large amount 2-3 years ago in terms of IT,
new SAP platform, new plants, so a lot of capex and other investments happened in 04-05
and 05-06, which have not happened last year. So, there is whole lot of cost which is down.
It’s partly scale and partly lower investment.
Abhijeet : Okay sir. thanks.
Sunil Duggal : You are welcome.
Gagan Ahluwalia : Thanks everyone for participating in this conference call. The webcast
and transcript of this call will be available at our website for your reference. Please let us
now if you require any other information. Have a nice evening. Thank you.
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