Dabur India shined in bourses after it posted a stable Q1 and a healthy uptick in margins. Low raw material costs and steady sales helped the company maintain a robust 12-per cent growth in profits. Speaking to Bloomberg TV India , Dabur India CEO Sunil Duggal says ₹500 crore of capex will help in increasing output, and yield hefty returns. Excerpts:

Can you elaborate on factors responsible for your results?

I think the quarter was marked by a sharp deceleration in growth across most of the categories, particularly home and personal care. While the revenue numbers look a little subdued, the underlying volume growth of 4.1 per cent is not too bad.

Also, I think we have been able to maintain our margin structure — an EBITDA growth of 12 per cent and net profit growth close to 12 per cent, which is pretty good under some trying circumstances.

So the whole effort has been to protect the market share and drive volume growth. And if the revenue line looks a little bit soft as a consequence, I think we have to live with it. Hopefully, things will reverse later in the year. But at this point in time, the category growths are under a lot of stress.

Also, it is interesting that your ad cost, as a percentage of sales, went down this time around. How did you manage that?

That is a little bit optical. In the true sense, advertising expense has remained flat. A lot of what we categorise as advertising — such as consumer and trade promotions — are actually buried under the new accounting standards. So they are not visible.

But if you take a like-for-like measure, our advertisements spends have been flat, and we have maintained the high ratios as in the past. Only thing is, the ad spends moved more towards promotional activities rather than above the line. Therefore, at first glance they look as if they have declined, but actually they haven’t.

What is the outlook for volume growth, and also your domestic and international businesses?

Outlook is hard to measure because we would expect some revival in terms of category growth in the second half of the year. Also, we are a little bit handicapped in this quarter particularly because of a very high growth in the base quarter; in quarter one of last year we grew our business by around 12 per cent, and the underlying volume growth was about 8 per cent. Going forward, we see two positives — one is that the base would be coming down and we would be able to lap that up and get a better growth; and most importantly, the category growth should revive specially in the second half on the back of a good monsoon. So we are looking forward to a better second half. I think we really have to manage in Q2, and then see growth coming back in the third quarter.

Your raw material costs were reined in the last couple of quarters. Do you expect to sustain that trend?

I think they are looking pretty benign as the crude oil prices seem to be coming down once again. It had gone up briefly for a month or so, and then after Brexit it has been coming down. Otherwise, there should be a deflationary trend in agri products consequent of a good monsoon. So the margin outlook, especially in terms of raw material cost, is looking quite benign. So there is no stress on that front. The category growth in terms of volume is really what we have to look out for.

You have announced ₹500 crore of investments. Where will you invest the money?

The largest investment will be in North-East India. Half of the ₹500 crore will go into a single unit there, which will be our largest unit. We will be able to get a substantial amount of savings from that unit in terms of tax benefits.

We are also setting up additional capacities for beverages in our existing plant in Pantnagar. There is no juice business there at the moment. So, we will be diversifying away from our Rajasthan plant into this new plant, which should get us good fiscal benefits. So in terms of capex, this will be the highest we have ever spent in a particular year. But it is to build the capacities for the future and also utilise the tax-friendly environment. So the paybacks from these investments will be very quick.

Related Topics