dabur india limited earnings conference call” call/100096_20091027.pdf · dabur amla hair oil...

"Dabur India Limited Earnings Conference Call”

October 27, 2009

Dabur India Ltd.’s Participants Mr. Sunil Duggal - Chief Executive Director Mr. Rajan Varma - Chief Executive Director Mr. Ashok Jain - General Manager - Finance & Co. Secretary Mrs. Gagan AhluwalIa - AGM - Corporate Affairs

Dabur India Limited October 27, 2009

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Gagan Ahluwalia: Thank you. Good afternoon ladies and gentlemen, on behalf of the Dabur management I

welcome you to the conference call pertaining to the results for the quarter and half year ended

September 30, 2009. Present here for this call are Mr. Sunil Duggal, Chief Operating Officer,

Mr. Rajan Verma, Chief Finance Officer, Mr. Ashok Jain, General Manager, Finance and

Company Secretary and Ms. Saigal Singh Gupta, General Manager Finance. As always we will

start with the brief overview by Mr. Sunil Duggal followed by a question and answer session. I

hand over now to Mr. Duggal.

Sunil Duggal: Good afternoon ladies and gentlemen. I welcome you to the Dabur India Conference Call

regarding the results for the half-year and quarter ended September 30, 2009. Dabur India

Limited has delivered one of the strongest growths in the last four years with 22.3% growth in

consolidated sales and 29.2% increase in profit after tax during the first half of fiscal 2010.

Growth in sales during the quarter was 22.4% and that in PAT 29.1%. The Company witnessed a

strong expansion in margins led by improvements in gross margins and lower overheads. The

Vivid experienced a strong volume growth of 14.2% against general apprehension of a slowdown

due to the drought like conditions in many parts of the country. Fem Care Pharma in its first full

quarter under Dabur management posted revenue growth of 24.2% for the previous year with a

profit of 5.82 Crores. The strong topline growth has been led by a robust performance of

domestic business of consumer care and consumer health as well as continued momentum in the

overseas business. Contribution of the overseas business in overall sales for the quarter stood at

20%. The growth in domestic FMCG business of CCD of 17% was led by strong momentum in

categories like Hair Care, Skin Care, Health Supplements and Foods.

Hair oil grew at 15% for the quarter and half year period. Dabur's largest domestic brands,

Dabur Amla Hair oil reported a 13.5% growth during the half-year and 12.5% during the quarter.

Vatika Hair Oil posted a growth of 15.8% during the quarter and similar in the half-year period

led by the new positioning and marketing campaign establishing products’ superiority. Anmol

Coconut oil registered growth of 38.4% led by share gains in some of its strong markets. The

two light hair oils, Dabur Amla Flower Magic and Vatika Enriched Almond Hair Oil which were

launched in the previous quarter were rolled out nationally and received good response from

consumers.

Shampoos continued to outdo the category with a strong growth of 47% for the half-year period

and 45.5% for the quarter. Led by the strong growth Vatika Shampoo has reported an increase in

market share from 6.3% in the previous year to 7.3% as per AC Neilson. Dabur Total Protect

Shampoo, a health shampoo having ayurvedic ingredients has now been nationally launched after

successful test marketing and received good response.

Health supplements recorded a growth of 20.6% in the first half and a stronger 23.5% in the

quarter. This was led by impressive performance of Dabur Glucose which grew by 55% during

the half year and tripled sales in the quarter. A new campaign based on relevance of Dabur

Chyawanprash for infection of H1N1 and building body immunity had a positive impact on sales

which grew by 12.5% before the main season, which is commencing in the third quarter. Dabur


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Honey grew by 15% during the half year and the quarter driven by a new campaign featuring

both MS Dhoni and Amitabh Bachchan and various consumer activities highlighting uses of

honey for a healthier lifestyle.

Oral care recorded a lower growth of 6.6% mainly on account of decline of 8% in Red

Toothpowder, which continues to lose out to the more preferred format of toothpaste. However,

the toothpaste sales grew by 15% in the half year and 11% during the quarter. Dabur Red

Toothpaste recorded a growth of 16.7% during the half year and 15.3% during the quarter and a

new advertisement campaign has been launched communicating the brand’s herbal positioning

and ayurvedic heritage. Babool posted a growth of 15% for the half year and 9% during the

quarter. A new gel variant called Babool Mint Fresh has been launched with which the Company

has made an entry into the Gel segment with a unique herbal foundation and attractive price

value proposition. Meswak the premium herbal toothpaste in Dabur's fold continued to perform

well and reported a strong growth of 23.4% during the half year and 15% during the quarter.

Skin care category posted a good performance recording a growth of over 40% led by

momentum in Gulabari brands along with the newly launched skin creams, moisturizers and

Fresheners. The quarter also saw the test launch of Uveda, Dabur's new skincare range based on

ayurvedic and herbal formulations providing holistic skincare solutions for everyday skincare

needs. The brand has been test marketed in Delhi NCR and Maharasthra and has so far received

a good response. Uveda will be launched in other markets after taking into account consumer

feedback and results of the test markets.

Digestive category grew by around 13% for the quarter and half year period. The Hajmola brand

reported a steady growth led by new positioning - Complete your meal with Hajmola.

Aggressive activations across restaurants, dhabas and railways along with launch of. 50 paisa

SKU has led to revive momentum in the brand.

Homecare reported a growth of 8.3% for the quarter and similar for the half year. While most of

the brands posted growth in excess of 20%. Odonil witnessed compression due to emergence of

local competition and Private Labels. The brand is being relaunched with a more attractive

packaging and new fragrances and a new Rs.10 SKU.

Foods reported a good growth of 22.7% during the first half and 24% during the quarter. Real

juice portfolio grew by 22.6% during the quarter.

Homemade culinary brands had another strong quarter with 40% growth. Growth in Real

franchise has been driven by aggressive ad campaigns to establish the differentiation on the twin

platforms of health and nutrition and no preservatives. Real Burrst, which was test marketed in

the last few quarters, has performed satisfactorily and is set to be launched nationally in the next

season.


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Consumer Health witnessed a higher growth of 17.7% during the quarter led by good overall

performance of OTC as well as ethical portfolio. The brands, which were transferred from CCD

such as Pudin Hara, Janam Ghutti and Hingoli, posted over 20% growth in sales.

Dabur international business continued to grow at a fast rate posting a 38.3% growth for the half

year period. While the currency gains have come down in the second quarter the overall growth

of business was strong at 27.5%. The core markets that are GCC Egypt, the Levant Countries,

Nepal and Bangladesh continued to perform well posting over 40% growth. This was led by

aggressive investments in bank building and marketing and excellent growth in new products

launched in the last two years. Vatika brand, which is one of our largest brands in the Home

market, has gained significant scale overseas becoming almost similar in size.

The Company saw a strong growth of 29% in profits during the second quarter and first half led

by significantly lower material costs and operating leverage from stable overheads. The

consolidated EBITDA margins expanded by 130 basis points from 18.2 to 19.5% for the half-

year period. The margins improved by 183-basis points in the quarter touching an all time high

of 21.8%. This was despite increased investments in adpro, which went up from 12% to around

14% as a percentage of sales. Improved margins contributed to a handsome growth in profits,

which was also aided by reduction in losses in the retail business.

Overall this has been one of our best two years in terms of volume growth as well as profit

delivery and has been enabled through sound business strategies as well as efficient cost

management. The Company has always aimed at maintaining strong business growth inspite of

changing external conditions. During this period when the country was faced with one of its

worst ever monsoons the Company has posted its best ever performance demonstrating the

strength of its brand, strategy and execution capabilities. With this I now open the Q&A and

invite your questions. Thank you.

Abneesh Roy from Edelweiss Securities

Abneesh Roy: Sir, Congratulations on a very good set of numbers. As we go ahead clearly there is a lag effect

before the bad monsoons will show results. So what is the current status? Where do you see

volumes going ahead and where do you see gross margins also, because some of the agri

commodities the prices might shoot up

Sunil Duggal: On the first part the demand side, there is no real reason to believe there will be any contraction

of demand because the monsoon or lack of it has been already factored into the consumers

purchase behaviour and the subsidies which the government has put into as the economic stimuli

and in the rural areas are likely to continue. We also have expectations of a record rabi crop, so

that will also mitigate any effect of the poor kharif season. I do not see why demand should

contract in the next couple of quarters and on your second question about margins, they could

come under some pressure. We have always maintained that the fourth quarter would be a

testing time for us and there is every possibility of the gross margins coming into some kind of

compression during that period. Because inflation is almost clearly in sight and will be higher in


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the last quarter than we have seen in the previous three and some sign of that is already visible.

Now having said that we are still pretty confident of maintaining our EBITDA growths because

there is some flex available in A&P. The operating leverage should continue to kick in because

our overall cost structure is under control. So hopefully we should be able to maintain or at least

have a similar trajectory in terms of margins as what we have done in the first half.

Abneesh Roy: Regarding the Fem portfolio we are currently under relaunch phase and also some new brands

are launched under Dabur brand also. So do you think A&P spends can come down, because

they increased by 300-bips almost, so…?

Sunil Duggal: They can come off a little bit, we are really at an all time high in terms of A&P. We have never

spent this kind of money - 14.1% for the quarter and 14.6% for the half, so there is every

possibility of some contraction here. It may be more in the region of 13%-13.5%. We should still

make it considerably high than what we did last year, which was around 11.5% to 12%, but high

cost initiatives have already happened in terms of the start up cost where we had Shampoo

launches, the skin care launch and initial spends for Burrst and we do not really have the same

level of activity in the next half as what we had in the first. Now second half will be more in

terms of consolidating these initiatives rather than putting into play the huge number of new

initiatives. So which will mean that there will be less pressure on our A&P spends and I am

pretty confident that if required we would be able to compress it. I think we will really do it only

if there is margin pressure as far as the COGS scenario goes, if it is not we might continue to

invest heavily and grow the topline even more strongly.

Abneesh Roy: Sir, my next question is on modern trade. We are definitely seeing that growth is coming back in

modern trade in the key players. But we also see that some of our products like Odonil, there has

been a decline of 3% partly because private brands are doing well, so on an overall level how

does the comeback of sales to growth in modern retail impact us. Is it positive or is it negative?

Sunil Duggal: For the categories such as Homecare, overall the revival of health in modern trade is positive

because so much of volume comes from modern trade. Around 25% of the business comes from

modern trade. So even though there is heightened private label activity in Homecare segment

net-net we would encourage the revival of modern trade. So I do not see that to be upset even

though in categories where there are fresheners, private label has become quite a force to reckon

within some of the big change. So that is something which you will have to deal with and I

think we will have to move more aggressively into general trade and have more price friendly

price points and encourage consumptions as far as general trade customers are concerned.

Abneesh Roy: Okay Sir, all the best. That is all from my side.

Percy Panthaki from HSBC Securities

Percy Panthaki: Hi, Mr. Duggal, Gagan, Congratulations on a good set. Sir, my question is on your conviction

that we will probably see a record crop of rabi this year. So now if I look at the previous

droughts, whenever the kharif production has gone down most of the times the rabi production


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has also gone down. May be a difference in the quantum of the decline, but it has generally

moved in the same direction, so what is that it gives you confidence that this will be completely

different this time?

Sunil Duggal: I think what has happened differently this year was the prevalence of very late monsoons. There

was a strong revival of monsoon in the month of September, which typically does not happen in a

drought year and which leads to higher levels of soil moisture, expedites the sowing of crops for

rabi and while I am not an expert on the subject, but all indicators from the government and

ministries do indicate that the rabi crop is going to be good one. So I am making my assumptions

on information, which I gathered from other resources. So, historically you are right that a bad

kharif would lead to a bad rabi because of overall soil conditions but this year it is likely to be a

little bit different.

Percy Panthaki: Okay, secondly sir, we are sitting on good gross margins right now, even if they decline from

these levels in the second half of the year we will still see for the full year a good gross margin

profile. Now supposing three or six months down the line cost inflation comes in maybe a bit

more aggressively than what we are expecting it right now, so in that case can you maintain your

prices and may be take a hit on your gross margins saying that they already were at very high

levels and not sustainable or do you think that you would have the fire power to increase your

prices and keep your gross margins at least constant at FY'10 average levels?

Sunil Duggal: I think it depends upon the quantum of inflation. A moderate inflation would probably mean that

we would keep our prices around the same levels as what we have, perhaps a little bit increase

here and there but nothing major because we do have that play in A&P which is outlined in the

earlier question which will mitigate the impact of the higher costs, but if you have hyperinflation

or inflation of a level, which is of a different magnitude then I think pricing power is available

and that weapon can always be put into play. We are always conservative about increasing

prices as you would have seen over the last couple of years, so we use that as almost as a weapon

of last resort. But it is not that our brands do not have pricing power etc; if it is in

hyperinflationary environment overall competitive scenario would permit price increases, so

again I am not overly concerned about margin compressions as we speak. I do have visibility of

margins and I think my only problem there is the tax rate which has gone up considerably and

which has led to lower growth at the EPS level. But at the EBITDA stage we really are facing no

great pressure.

Percy Panthaki: You have concern on the tax rate even from current levels of about 17%-17.5% that it might

increase?

Sunil Duggal: No I think 17 is what is likely to remain but even 17 has been a huge increase from 12.5% to

13% which we were in last year, so we have been able to deliver a 30% profit delivery despite

the fact of the higher tax rate. That has been really one area of concern, but I do not see that

changing, certainly not this year. In the next financial year there could be some changes but

hopefully it will remain at this level and not go up.


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Percy Panthaki: The cost you are saying net-net there could be interplay between gross margins and ad spends but

at the EBITDA margin level we should not see a decline going into FY'11 versus FY'10? Right?

Sunil Duggal: I do not see the decline happening in the third quarter. Fourth quarter the visibility is not as

sharp, but we will try to maintain…

Percy Panthaki: Trend is not my concern, sir. My concern is FY'11 average versus FY'10 average for the full

year?

Sunil Duggal: In FY'11 whatever inflation impact happens we will be able to mitigate it with price increases,

keeping in mind this whole year there has been almost no price increase. There is some

flexibility available that in FY'11 we can have four-five percent price increases, which would be

more or less the quantum of inflation. But in the current year I would hesitate to increase prices

because that seems to need a sort of a breather, we did take our prices around 5% last year, and

certainly we would like to avoid any price increases this year.

Percy Panthaki: Just a couple of two or three data points if you could please share. Firstly, what is the juices

growth ex-Nepal that is India only? Secondly what do you think is the sustainable long-term ad

spend as a percentage of sales that you would like to maintain over the next let us say, three to

four years and lastly the toothpowder decline at 8% I think that decline for Dabur has been ahead

of the overall toothpowder market decline, your comments on these three.

Sunil Duggal: First point, the growth in juices was 23% in India.. Nepal actually did much better than that.

The business of Juices grew by around 80% but while presenting numbers here we just take the

India view of the Foods Business and we do not include Nepal, which is clubbed under the

overall head of International Business. So the growth in Nepal actually has been very, very

impressive and it is actually emerging as a very large consumer of Real brand. So 23% is the

India growth.

Now to your second question about ad spends, all I can say is that we will be in the band of

11%-14% and everything depends upon the quantum of the products which we introduce and the

amount of spend activity is there as far as the competitive environment, media inflation, etc., etc.

But 11%-14% at the most close to 15% in extreme circumstances but we maintain spends within

this span.

To your third question on toothpowders, yes 8% has been disappointing, but having said that

there are reasons to believe that we will be much better off by the year end. We are hoping to

have zero growth now that is almost a best case scenario in this category but even if that does not

happen, the rate of decline would be certainly much lower than 8%. 8% is little bit on account of

base effect, there were some promotions etc., last year, so I think anything between zero and

minus 3% is what we would perhaps see in toothpowders by the year-end.

Persey Panthaki: Okay thanks very much sir.


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Aniruddha Joshi from Anand Rathi

Aniruddha Joshi: Hello sir and Congratulations for an excellent set of results. Sir, just wanted to know about the

new Rs. 10 SKU the slide you have in your presentation, you have also shown Chyawanprash at

Rs.10.

Sunil Duggal: Sorry, that is a mistake. That is Rs. 25 SKU.I wish I could price Chyawanprash at Rs.10. It is

typically not possible. Everything else you see in the slide is Rs.10.

Aniruddha Joshi: Okay, and what do you say about the new initiative on price points because Dabur was never

after price points?

Sunil Duggal: The price point is a very, very powerful weapon to feed the rural market, and I think if you are

not presenting these price points, you cannot be a player in many of these categories. So I think

we have made a huge effort and these are almost entirely rural centric. There is a huge amount of

inertia in the rural population to gravitate to slightly higher price points, and these 10 Rs or 5 Rs.

price points are something, which you vacate at your own risk or do not occupy at your own risk.

Fortunately, the cost environment etc., permits good margins at these price points. So barring

perhaps Babool Rs. 10 where the margins are a little bit lower everything else on margin profiles

at these LUP’s are pretty satisfactory.

Aniruddha Joshi: So this strategy is mainly for rural areas?

Sunil Duggal: Yes mostly for rural areas.

Aniruddha Joshi: Okay, secondly, just some data point. What is the market share gain in the quarter in shampoos,

oral care and hair oil?

Sunil Duggal: Shampoos is 1%, 6.3% to 7.3% over previous year. That is compared to the same quarter last

year.

Aniruddha Joshi: That is YOY?

Sunil Duggal: Okay YOY.

Aniruddha Joshi: And oral care?

Gagan Ahluwalia: Oral care in toothpaste our market share has gone up by around 0.7%.

Aniruddha Joshi: Okay and both oils put together Amla and coconut?

Sunil Duggal: Amla and coconut is tracked separately. Now the data for hair oils is very suspect because

Neilson is showing Amla oil growth at around 5% and we are growing the brand at around 15%

in terms of secondary sales. So we are entering into a fairly big dialogue in terms of the market

share tracking with Neilson and we are not satisfied at all with the data thrown up by Neilson.


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The reason for that is that is now very substantial quantum of Amla comes in from rural areas

and that is where the Neilson pick up is very weak. So there are issues in market share of hair

oils, but in others to a large extent match our own sales and they are reasonably satisfied.

Aniruddha Joshi: Okay, regarding price hikes, whether we have increased prices of any product in the quarter or

these are the carry over impacts of price hikes in previous quarter?

Sunil Duggal: Largely carry over, but there has been some small increase in Chyawanprash and Honey. Honey

price hike was in the first quarter, Chyawanprash in the second, but pretty marginal. So I think

this 3.2% odd is the price component of the growth out of which between 2 and 2.5 will be the

carry forward from last year.

Aniruddha Joshi: Okay, any guidance for the international business on constant currency basis? What would be

the international business growth, maybe over next one year?

Sunil Duggal: In Constant currency I would put the growth at around 25%. Its is a safe figure. Hopefully we

should do better than that but that is what I think we will definitely do.

Aniruddha Joshi: Okay, sir, have you observed any media inflation during the quarter?

Sunil Duggal: Not yet, but at times of some inflation happening, as and when business picks up or the financial

sector reviving there would be some pressure on prices. So there is a big deflation, which

happened over the last one year has now tapered off and I would not rule out some inflation

happening in the next couple of quarters. In fact international is also a big consumer of media.

There was significant amount of deflation, which continues.

Aniruddha Joshi: Okay. Very lastly we have also launched Dabur balm. Now in the balm category there is already

consolidation happening with Emami acquiring Zandu. So where do you see our chances? What

are our price points compared to them?

Sunil Duggal: The Dabur balm is actually not a new launch. It is a relaunch of an existing balm and it has been

done as a soft launch. We have not put media behind it, so I do not think we have great plans as

of now for the balm sector. I think we need to do much more work before we get a product

behind which we will invest, so as of now there are no plans to invest in balms.

Aniruddha Joshi: Okay. Thank you very much.

Hozefa Topiwalla from Morgan Stanley

Hozefa Topiwalla: Hi everyone. Congratulations on a very good performance. Just a couple of questions. The first

is can you give me the international EBITDA growth and international EBITDA margins for the

quarter?

Gagan Ahluwalia: EBITDA margin in international for the quarter has gone up from 12.5% to 18%.


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Hozefa Topiwalla: And input cost was the key driver or is there anything structurally that has changed because this

is the highest ever EBITDA margin that you watch even in International Business?

Gagan Ahluwalia: It was mainly due to lower material cost.

Sunil Duggal: Most of the margin has come from costs, because we took a price very sharply last year. Increase

in International prices was actually very, very sharp and fortunately there was no pressure this

year to go down on prices. So we were able to capture the margin increase on the back of lower

material cost.

Hozefa Topiwalla: If I recall the international business EBITDA margins a couple of years ago was 9%-10%. Now

it is 18% to 19%, so is that a newer sustainable secular EBITDA margin for the international

business?

Gagan Ahluwalia: Half year we had 16.5%.

Sunil Duggal: I think at 18% I see no reason why we should not be able to maintain it. See it will depend upon

how and which geographies we prise open and there are geographies which will, let us say have a

lower EBITDA. Like say Nigeria vis-à-vis Egypt, which is very high EBITDA, which does not

mean that we do not go to Nigeria because there is a market opportunity, but if Nigeria occupies

a larger slice of our International Business there would be overall pressure on margins. But on a

like-to-like basis I think these margins are sustainable because going forward if inflation comes

back and there is no sign of that happening at least in the International Business unlike India. I

think they have taken a great deal of care to improve the mix and get into higher margin products

areas, categories like skincare, high end hair care, hair creams and all for example and that I think

would keep the whole margin profile pretty robust.

Hozefa Topiwalla: What was the EBITDA margin for international during second half of last year?

Sunil Duggal: 14%

Hozefa Topiwalla: And just to put EBITDA margins in perspective and cost pressure, assume that the current cost

levels remains as it is and of course, in the beginning you mentioned that your costs were covered

for the first half and second half you were not very clear. Assume there is no change in the input

cost, what is the second half versus the first half potential input cost inflation that you would face

in your businesses?

Sunil Duggal: Q3 we are still not seeing any significant inflation taking place. Surprisingly that seems to be the

fact. So the margin environment is still pretty benign in the third quarter, but having said that

from December, January we may see signs of inflation coming up. That is a consensus view. It

is very hard to predict, but there seems to be a general opinion that agri commodity prices would

firm up. Oil prices, which as anybody's guess. So there could be some 100 to 150 points erosion

in terms of gross margins if we do not take up our prices. But I do not see anything dramatic

happening on this.


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Hozefa Topiwalla: In terms of the growth drivers for domestic business which has done very well for the quarter and

the first half, is there any colour that you can provide on the growth drivers in terms of increase

in geographic reach is the driving growth, urban versus rural or any colour that you are going to

provide on growth for your company?

Sunil Duggal: Domestic or international?

Hozefa Topiwalla: Domestic?

Sunil Duggal: I think a lot of these new initiatives which we put into play should now start contributing to the

topline. At the moment they are in the test launch but you take skincare which we are growing at

around 40%-45%. There is no reason why we cannot continue to maintain this pace of growth

for the next many quarters and as and when the base increases it will be a significant contributor

to our topline. So I see initiatives like skincare, and food and drinks to be very, very instrumental

in driving our growth story. Well the third driver, which we will put into play next year, which is

complete revitalization of our OTC range for which we have engaged a consultant in crafting a

strategy for that. That would be another growth driver. Entry into light hair oil is a segment we

have been significantly absent. It is going to be one of the growth drivers. We should be able to

maintain momentum in our shampoo portfolio with the launch of new anti-dandruff range as well

as new Dabur total protect shampoo which has done extremely well. So there is enough play

here and I am not saying that everyone of these initiatives would fire, but even if half of them do,

I think we have our growth story alive. But I think what is critical to our growth is continued

buoyancy and resilience of the rural economy and I think that has really been the difference

between growth in the very low teens and now growth in the mid teens which we are seeing

today and hopefully that will continue.

Hozefa Topiwalla: Is there a big difference in the growth between rural and urban in first half of this year for you?

Sunil Duggal: I think we were typically growing at around 10%-11% for the last couple of years and now the

growth has revved up to 15% to 17%. That 5% delta has really come from rural. The urban

growth has been steady and in some areas they have actually come down because of modern

retail but overall they have been fairly steady. It is not really contributed to growth in any

significant manner like the rural big story has done.

Hozefa Topiwalla: So if the average company has come at 16% to 17% what will be the rural growth in the first

half?

Sunil Duggal: See the rural growth, we have not yet mapped it out, it is very tricky to do it, because it is very

hard to measure the flow from urban throughput, let us say, in the case of CCD for example I

would think the rural growth to be more in the region from 20% and urban growth to be more in

the region of 12% to 13%. This is very ballpark, but this I think is indicative of where the growth

is coming from. And what is interesting and important is it is on the back of a terrible monsoon.

So what gives me hope is next year hopefully we will have a normal monsoon and significant

growth in agriculture income which contracted 2% this year and next year it grows by 5% to 6%


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on the back of a good monsoon. It is possible because the date has now eroded, we might see

growth ahead of 20% because the consumption intensity and penetration level still warrant that

kind of growth. So that gives me a lot of hope that we will weather the storm and we will come

out on top and there is no reason why we cannot now capture the fruits of this initiatives.

Hozefa Topiwalla: Can I take one last followup question on this? On the Rs. 10 and Rs. 5 and Rs. 2 price point

packs just to put them in perspective for Dabur now, including shampoos, what percentage of

total sales come from price point packs which is Rs.2? I am not talking about Hajmola small

pack, but the Rs. 2, Rs. 10 and Rs. 5 price point packs. Is there a number that you have off hand

or…?

Sunil Duggal: I do not have this upfront. It would not be very, very big, but it would be perhaps in the region

of, just to give a number out literally out of our hat, these LUPs would contribute around 20% to

25% of our domestic sales, but I will give you more precise figure once we have done the map.

Gagan Ahluwalia: It varies from category to category. Shampoos is 80%, then Chyawanprash will be 5%,

Toothpaste, it might more likely be 20% to 25/

Sunil Duggal: Babool it will be 50% and Mesawk it will be zero, so it a huge spread here, but if you actually get

everything and actually you can do some of the numbers. I think 20% probably is not going to

be way off the mark.

Hozefa Topiwalla: Thank you, very much Sunil and again best of luck for your next half performance.

Trilok Agarwal from Birla Sun Life Insurance

Trilok Agarwal: Just wanted to check this that in our toothpaste category what was the growth in the Meswak that

we had?

Gagan Ahluwalia: Meswak for the half year growth is at around 23%

Sunil Duggal: 23% for the half year, 16% for the Q2.

Trilok Agarwal: And can you just give us the gross debt and the cash levels as on September?

Gagan Ahluwalia: Debt is at 167 Crores as on September 30 and cash in hand is around 250 Crores.

Trilok Agarwal: All right thank you very much.


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Hemant Patel from Enam Securities

Hemant Patel: Hello Sunil. Congratulations for a great set of numbers. A couple of questions on the categories.

A) Vatika Shampoo continues to grow at around 47% and it is a phenomenal growth rate that you

have seen in the last couple of quarters. Can you just highlight us what is really ticking out here?

Sunil Duggal: One contributor is the launch of the new shampoo, which is the Dabur Total Protect Shampoo,

which we will probably ended the year with something like 15-20 Crores of sales. So it has been

actually a pretty good success, but I think the more important factor has been that we have

aggressively marketed the sachets for the rural population and we have done it in a very

concerted and very active fashion. A lot of good growth has come from the Re.1 sachet because

that ultimately is 80% of the SKU mix here. Also I think the renovation we did in terms of the

product, we completely changed the packaging and particularly in antidandruff has been very

successful, so we proceeded to be a premium shampoo at a fairly affordable price and that

proposition has worked very well both for urban and rural areas.

Hemant Patel: In shampoos in particular, what would be the contribution of your rural sales?

Sunil Duggal: We would estimate rural sales to be around 50%. It is going up pretty sharply over the last one

year. The rural population has now taken to consuming shampoos in a very big way.

Hemant Patel: Okay. So your growth rate for the 50% of sales is much faster than the urban market sales is

what we can take…?

Sunil Duggal: Yes I would definitely expect so. Again, if you classify the sachets that are in LUP and 80% of

the mix is in LUP, which are more of a rural phenomena then urban.

Hemant Patel: In toothpaste you did mention in your presentation that your toothpaste category for Dabur itself

is growing at twice the growth rate of the industry but the industry itself is slowing down for

some reason. Can you take us through why that is happening?

Sunil Duggal: I do not know again. This could be a Neilson phenomenon and while our growth rates are ahead

of what Neilson says there is disconnect in the numbers here. I think a lot of growth in

toothpaste happening in the rural areas and that is where Neilson data is suspect. But what I

would suggest you to do is you just add the numbers of the three players in oral care and all of

them are listed, so you may be able to get the tonnages, and just do the math and you will find

what the growths are and those numbers will be far better indicators of where the category is

growing as compared to Neilson.

Hemant Patel: In retail venture, I notice that the losses are coming off and where do we see this actually going

ahead and can you give us an idea as to what kind of sales growth plans or rollout plans that you

have at this particular moment? Are you likely to take it up in the second half of this year or

probably next year?


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Sunil Duggal: We have got 11 operating stores today and this is despite shutting down around six stores which

were not doing well. So we have been opening stores and we have been putting a strong cap on

costs. We have been getting aggressively into revenue sharing models wherever available and I

think the overall experience and knowledge of the operating team in terms of which store to open

and what kind of buttons to push is vastly superior to what it was one year ago when we were on

the learning curve. So I think we are aiming to end the year with 25 that may not happen, but I

think 20 is certainly within reach. So 20 stores may not give us a huge topline, but I think it will

give us an operating business model, which is profitable and which is scalable and I think if we

are able to achieve that by the year end that would be a big win.

Hemant Patel: And what kind of losses are you likely to cap off at by the end of this year and probably next

year? Can you quantify that?

Sunil Duggal: This year, I would not know for next year, because I think we still have to plan strategy for the

next year, but the present year we have capped the losses at around 12 Crores. We will try to

make it a little bit lower than that, but twelve is the ceiling.

Hemant Patel: Down the line if you just feel that the losses might continue, would you take a call actually to

exiting this category?

Sunil Duggal: I think if I can get scale and the limit the losses to around 10 Crores a year, I still am building

value in a business which I can realize at a point in time. So I do not mind that level of bleed.

What I do not want to happen is that it should have any material impact on our margins and 10

Crores a year certainly is not a material impact. So that is really the objective- to scale up the

business, keep the losses within that number which are indicated and if you are able to scale it up

that gives you a lot of hope that the operating business model is basically a sound one and we can

realize value. But having said that there is also a worst case scenario that the stores might lose

more money than what we have anticipated in which case we will take a call on what to do with

the business.

Hemant Patel: And sir one final question, where do we stand in terms of our inorganic growth plans as our

geographies or in terms of either categories that you may be interested in at this particular

moment?

Sunil Duggal: That’s been articulated offer enough. The two categories which we will focus on our personal

and healthcare we probably will not do an acquisition with homecare and food and beverage

because of reasons of margins in the case of F&B and Private Label and overall attractiveness of

the business category as far as Homecare is concerned. So we will restrict these two categories

and in terms of geographies it would be largely India subcontinent, the MENA region, South

Africa and Sub Saharan Africa. I can almost certainly confine our activities to these. We could

see a little bit of interest in some other markets in Central Asia, but what we will probably never

do or at least never is a strong word, but not do for the near future is any M&A activity in the far

east or in the developed world.


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Shirish Pardeshi from Anand Rathi

Shirish Pardeshi: Thanks for taking my question. Hi Sunil and Congratulations to the entire team. Just couple of

insights. What is exactly happening in the shampoo category because we have been hearing that

Cavin Care is also losing its shares in the South India and in rural. On the other side, the big

daddy Levers is also losing the market share and you guys are gaining quarter-on-quarter, month-

on-month. So with the launch, is the consumer trying to shift or what exactly is happening in the

shampoo category, because Re.1 price point is a good strategy which Cavin Care had in the past.

Sunil Duggal: I think the herbal properties of our shampoo, actually provides the customer a very strong reason

to buy. It is a very enduring value proposition, which we have seen, comes up again and again.

So once if you craft a product around that proposition, which is attractive, which offers value and

which has got good delivery and we obviously have adequate amount of distribution strength to

penetrate deep into the interior, it’s a sure recipe for winning. But I think the key here is that the

marketing guys had got the proposition right and we are able to have the financial muscle and the

distribution clout to really hammer it in. So if you could see our shampoos and compare it with

the competitors and look at it from the point of view of the rural consumer who have a lot of

belief in the herbal attributes of products whether it is toothpaste or shampoos or hair oils, I think

you will decide why our product has done so well. And what I like about shampoos is, there is so

much headroom for growth. At the end of the day we find with 40% compounded growth over

the last so many quarters, we have only 7.3% share. So there is no reason why we cannot be

20% or grow in this fashion for many years. We probably have to be with or we have to crack

anti-dandruff categories, which we have perhaps not been that successful. But there are many

examples of how good the ground work is and how good the execution is as far as category is

concerned.

Shirish Pardeshi: You said there is a shift, which is happening in a more regular usage of shampoo per day or may

be a weak phenomena or is that…?

Sunil Duggal: We have not tracked that. In fact we are doing some research to decide whether it is more of

penetration issue or consumption intensity issue. I think it is both. And lot of people now have

become occasional users of shampoos who will never use shampoos earlier, who used regular

soaps and there has been obviously increase in the intensity also. So it is both the penetration

and intensity being. But how much of which is contributing, e will probably have some answers,

once the consumer panels which you put into place yield some results.

Shirish Pardeshi: Would you have any insight on the anti-dandruff growth versus non-anti-dandruff growth?

Sunil Duggal: I think that the two growths are now fairly similar, but we have any data from Neilson?

Gagan Ahluwalia: Neilson is reporting negative growth in anti-dandruff category for the last three months.

Sunil Duggal: That is pretty unusual. Again and I do not believe that the negative growth is possible. Even

though our growth in anti-dandruff has been lower than the regular shampoo. It shows negative


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to the extent of 13% in July and 11% in August for the category, which you know is a little bit

strange as far as the numbers are concerned. But traditionally the anti dandruff growth has seen

ahead of the normal shampoo growth.

Shirish Pardeshi: Okay, my next question is on the oral care category. There is a shift, which is happening from

the toothpowder to the toothpaste domain and this is a quarter we have seen a lesser growth on

Babool after correcting the price issues and the other things. Now is the rural toothpaste

consumption dropping or is it the shift which is happening?

Sunil Duggal: I do not think so. One quarter numbers are not indicative. In the case of Babool it could be just a

base issue. There is growth in the region of around 10% for toothpaste franchise as far as

category growth is concerned and we hope to grow closer to 15% and gain some share in the

bargain. So Babool grew at 9% in the second quarter. I do not think one should read too much

into it. We do expect to grow Babool at around 12% to 15% for the year.

Shirish Pardeshi: My last question is on the international business. We have been seeing GCC Egypt, Bangladesh

and Nepal growing quarter-on-quarter. Now I understand Nepal’s is 50% is your juice. Why is

Nepal growing in the juice faster than any of the other geographies?

Sunil Duggal: It is we who make the juices as Nepal is concerned in the domestic facility, now while Frooti has

a domestic manufacturing facility there. Frooti is the number two brand. We have around 70

share, Frooti has around 20, but they import a lot of raw materials from India. We have a better

command over the value chain and we are able to invest more aggressively. We also have more

flavour variance while mango is the dominant flavour. There is around 20%-25% of the total

sales which comes from mango. And I think we have a very powerful distribution network in

Nepal and keep in mind that we are the second biggest FMCG Company after Unilever in Nepal,

so we have deep reach in a very difficult environment and despite all the Law and Order

problems. Many multinational companies exited the country because of the Law and Order issue.

I think we have maintained our ground and we were able to substantially grow share during these

periods of turmoil, because we were one of the few people who remained there. So Nepal while

not an enormous market, it is actually a pretty good one from the point of view of growth and

market share.

Shirish Pardeshi: Okay, GCC, Egypt, Bangladesh, Nepal, how much does your contribution it would come to India

IBD?

Sunil Duggal: What is emerging is actually, may be the most important geography is actually the non GCC

MENA, which is basically North Africa and Levant, centered around Egypt. This is now almost

the same size as GCC and there has been a lot of growth happening in this North African Levant

region. So if you take non-South Asia IBD, I would put the sale as 40% GCC, 40% non-GCC

MENA and 20% would be Nigeria, Sub-Saharan Africa, bits and pieces from here and there.

Shirish Pardeshi: If you take out the expansion in the new geographies, what could be the growth in the existing

geographies?


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Sunil Duggal: It is strong; the GCC growth is 40%. So it is not that the new geographies, which are not, in fact

one of the new geographies-Nigeria was one of the worst hit as sales declined by 20% because of

currency and other law and order issues there. So the GCC has been very resilient and one of the

main reason why it has been so strong, is that we have been very aggressive in launching new

products. While the internal economy is under pressure, we saw a good enough momentum in the

GCC countries. So we went into overdrive in terms of launching new products, new brands and

they have all been uniformly successful. For example, we had Amla Hair Oil, we launched Amla

Hair Cream and this year we should do Rs.15 Crores to Rs. 20 Crores of Amla Cream, which is a

very, very substantial number by those standards and most of this comes from GCC.

Shirish Pardeshi: Sir, is it safe to assume that you will arrive at the full year numbers in IBD of more than 25%?

Sunil Duggal: Yes, a lot of it depends upon the transition, but let us say on constant currency basis that is more

visible. 25% is definitely visible, and then we did have some translation gains in the first half, in

fact we may not have any gains in the second. So the rupee translation would look a little bit

different, but in constant currency, which is the important metric we should grow 25% plus.

Shirish Pardeshi: Okay. Thanks for taking my questions and best of luck.

Richard Liu from JM Financial

Richard Liu: Hello Mr. Duggal. If you can help put in perspective the gross margin expansion that we have

seen during the quarter? Pretty strong, where have this come from and what really happened?

Sunil Duggal: The six monthly margin improvement that we have seen essentially, approximately 2.8% has

come from material costs. We had, the employees costs that have come down, which has

contributed to this margin by about 0.4%, with the other costs coming down, which have been

partially been compensated by the increase in the adpro expenditure that we have seen EBIDAT

margin going up for about 200-basis points approximately.

Richard Liu: My question was more on the gross margin front, that is at the COGS line? Where we have seen

probably around 300 point level here or there, which raw material and which category do we see

this growth coming from?

Sunil Duggal: First of all the material issue that we had, that the material cost is actually being 44.6% during the

last quarter. This has come down from 47.2% in the first quarter on a sequential basis. So this

has been one of the contributors, our material cost has been the contributor to the margin

improvement. Basically the materials that have been soft are coconut oil, mustard oil and LLP.

Also positives from sorbitol and bottles, etc., but the big three have been these. There are some

negatives partially offsetting the gains such as sugar, honey etc..

Richard Liu: Sure, I get that. Would it be fair to assume that there is some kind of a gross margin expansion

that is happening and will happen going forward because of the fact that you have a much more

profitable Fem care business in your portfolio now?


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Sunil Duggal: Yes we have earlier stated that while there is a lot more relative clarity in the third quarter, I think

when we move into the fourth quarter, that is when the it is relatively uncertain. We believe that

we may have some impact, some marginal impact but nothing very major, but in overall terms

we believe we will try and maintain the over all margins at the end of the year. On P&L Fem has

contributed around Rs.5.4 Crores to bottomline, if you take a consolidated P&L, but if you look

behind those numbers actually Fem has contributed nothing incremental, We have paid 260

crores which have earned about 20 crore on in terms of interest. It has not been accretive but is

marginally dilutive as far as the quarter is concerned. I think that is a very healthy situation

because in the very first quarter of the acquisition, you have a business which is margin neutral

and that is almost the best case scenario. Going forward, we would see strong positive growth

emerging as and when we have an expansion of the profitability of the fem business. So if the

trajectory is good and if you have the profit delivery which is much ahead of what the cost of

acquisition is, then it will truly contribute to the bottomline. But as of now, keep that in mind that

the Fem contribution to the bottomline has really not been there in the true sense.

Richard Liu: Sure. But inherently, you will forget interest cost or the opportunity cost of the fund that we

deployed for a while. If you were to look at the inherent growth margin Dabur with Fem and

Dabur without Fem, is Dabur with Fem substantially in a better situation, considering that Fem

contributes around let us say, 3% of Dabur’s revenue.

Sunil Duggal: One number, which comes out if you take a blend of the gross margin, is the 50 bps increase in

the margin due to Fem alone. Yes it is not a huge amount, like you said Fem is 3%. Now Fem

operates gross margin in high 60’s, and the Dabur close to 50 so there is obviously the blend is in

our favour, but the size of the business is small. So we will have 50 bps upside as far as the gross

margin is concerned.

Richard Liu: Okay. Can we expect some more flow through in terms of Fem’s margin as and when you

integrated into the CCD network?

Sunil Dugan: I think we are not looking at cost arbitrage here. So I would not put a premium on the integration

piece. I think what we really have to do is grow topline and keep the margins profile as robust as

it is and the flow through will be very compelling, so that is what the belief is. Brief to the team

is to forget about the cost management. Most of that has already been done through integration

of the back-end and purchase efficiency and media efficiency. I really look at growing topline

and if you can grow topline by around 20%-25% of high margin businesses like Fem, then

literally you have nothing to worry about.

Richard Liu: Sure. That brings us to the next question about Fem’s COGS ratio. I mean if you were look at

the published account of Fem standalone, the COGS ratio as a percentage is of pretty volatile in

past couple of quarters since Dabur took it over. I mean we have seen that the COGS ratio and

the percentage of the net sales at somewhere around 32.5% toward the first half of last year,

jumping a lot around 45% to 42% in the second half, now that has again come off to 37% to 34%

in the first and second quarter this year. What would you attribute that to?


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Sunil Duggal: We really had management control only during the second quarter. 25th June was the takeover

date and I think that there is a lot of volatility because there are lot of activities, which was done

by the earlier management in terms of newer product introduction, which started a lot of

promotional activity, which distorted the margin profile quiet a bit. Going forward you will

probably see a much more stable trajectory as far as gross margin goes and of course what will

depend upon how much we impress A&P, but the gross margin profile is likely to be very stable

because we are now concentrating on the core portfolio. I think the earlier management had

taken to invest a bit time in new addition of skincare etc., and ageing, hair conditioners for

example and we have dropped most of the initiatives and got back into the core skin lightening

and depilatory part of the business which will have more predictable margins.

Richard Liu: Sure. So if I were to take the basket of products from the Fem stable, constant as it was in the

second quarter, so the kind of margin that we have seen at the material cost level that would be

more or less indicative of what we can expect going forward, give or take little bit because of

material cost inflation or deflation?

Sunil Duggal: Yes, second quarter is pretty much where the business is today.

Richard Liu: Okay and last question, may be totally out of whack, but I thought I would just think aloud, if

you look at, the kind of A&P spends growth that you have seen in your results and if one quarter

is any indication, we have seen that kind of a growth may not be as large as 50%, but similarly

some kind of substantial growth than A&P from other players as well. Everybody is spending

the same amount on a much larger scale and vying for the same pie, are we going to lead gain of

the market share for Dabur or is it just that you are giving out more to the media companies?

Sunil Duggal: This will be really no media inflation. So I think that it is neither inflation nor a wasteful use of

this resource. I think like us many people have enjoyed the benefits of low material costs and

they were up grant pay in terms of ad spends. So the visible level will be that much higher. I do

not know how much the companies are doing but I suspect that there the growth is in the same

region as ours. But I think that there is one difference here, that our money has gone substantially

above the line and I am not too sure whether the same path has been followed by other

companies, because I do see when I go to the market a lot of discounting, trade promos and

consumer promos, which ultimately forms a part of A&P bucket. But we have not done much of

that. We have kept our ATL spends very, very strong. So perhaps our share of media has

actually gone up.

Richard Liu: Assuming that all companies are deploying back their material costs saving into higher A&P or

thereabouts and I guess we would probably land up in a situation where nobody gains market

share because everybody is vying for the same decibel level. Is it possible that the market

expands because of this?

Sunil Duggal: I think yes, if you rev up A&P, the market certainly should respond to that stimuli and grow, but

once again I will go back to my earlier answer about how much of that is A and how much of

that is B. The A part would really contribute to long-term brand building and growth. The B


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would be more tactical and serve to protect or gain quick market share. It depends on how you

spend it. Now many companies took up prices substantially in soaps and dets etc., and we have

seen a lot of them part with promotions to the consumers and perhaps a lot of that has been

captured in the A&P and that is not going to help businesses in long term.

Richard Liu: I got your point Mr. Duggal. Thank you and all the best.

Aditya Shrinath from Quantum Asset Management

Aditya Shrinath: Good evening, Sir. I just have a little broader question. One is that in the current market, how

do you see the volume growth panning out going forward and to what extent do you also require

to make price corrections in your products. You mentioned that you will not be increasing the

prices, but today you are having a situation where your margins are little bit getting cushion,

because of the lower raw material prices, but is there any inclination to push up the volumes by

bringing down the prices maybe to some extent and my second question is more of rural

consumers, you mentioned that so far there has not been any impact of monsoon on the overall

sales for the company. But do you expect that impact may happen with a lag effect, may be six

months down the line or somewhere, how do you read that situation as of now today?

Sunil Duggal: First on the volume part we did grow volumes of 14.3% actually in the first half and what we will

not do is to reduce prices in terms of reduction of MRPs to fuel higher volume growths. We are

pretty satisfied with this level of volume growth. But in a sense we are in a surrogate way

reducing prices by the LUP strategy. So we are offering consumers a choice or an option to buy

products at price points, which were not available earlier, this Rs.10, Rs.5, Re.1 price points.

That is a far smarter way to offer value rather than just to take down prices of your main SKUs

and it benefits both the consumers and does not do any damage to your margins. So it is a win-

win situation. On your second question, a)I do not see any lag effect. If the lag effect happened,

it would have been apparent by now. b) The economic stimuli given by the government

continues on the basis and I do not think that is going to change and c) The rabi crop is likely to

be about one which will mitigate much of the impact of the poor kharif problem.

Aditya Shrinath: Okay. Thank you.

Ajay Thakur from Alchemy Shares and Stock Brokers

Ajay Thakur: Hello sir, very good set of numbers. Sir what would be the contributions of the Burrst to the

growth in the fruit juices segment?

Sunil Duggal: Very little, because Burrst was not just launched in a test form, it was only launched in modern

freight and we were not able to track the summer season when the Burrst was going to be a little

bit more seasonal as a result of the franchise. So the contribution is almost negligible to say, it

will be somewhat better by the end of the year, because we will do a more concerted rollout in

March. Some of the numbers will be captured in the current fiscal. But the whole trajectory of

launch is a very calibrated one here.


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Ajay Thakur: Second is what could be the reason for lowering other expenses?

Gagan Ahluwalia: Overheads basically they are not lower in absolute terms, but in percentage terms that is because

of the operating leverage, strong revenue growth and due to that as a percentage we have come

down.

Ajay Thakur: And lastly can you just give - throw some light on the packaging costs because it forms a

substantial portion of the overall cost for the company and how the company is actually trying to

get it reduced over a period of time may be?

Gagan Ahluwalia: Packaging costs basically are more or less stable over the last couple of quarters. There are no

changes in that.

Ajay Thakur: But then the trend has been if you see the crude oil prices, they have been rising consistently over

a period of time. So how do you foresee to pan out over a period of time?

Sunil Duggal: See there is not too much, every packaging item other than say paperboard is energy dependent

and therefore oil dependent, whether its glass or any of the plastics. So in a sense we are linked

with some lag or some other disconnect between the oil prices. We are to an extent in the mercy

of oil prices. So I do not think there is any great mitigation that we can do, because practically

every item, which you use has got some dependency upon oil and the only section is the tetra

packs which are used for beverage business, but for that we have our supplier and we do our

negotiations with them. Since the scale is now pretty large, we are able to negotiate a better way.

Ajay Thakur: Can you just throw some light on how much percentage of the packaging cost of yours would be

crude linked or if you can throw some light on that?

Sunil Duggal: Around two thirds to three-fourths would be crude linked, because you know all plastics and

glass in a surrogate way because it is very energy intensive and therefore linked to the oil

sources. So it is not that much of a finite. But all the plastics whether STP, PP, PVC, or PAT

have to appeared link to oil prices. So that will remain, only the paperboard has no overt connect

and the paperboard is not more than 20%-25% of our total packaging.

Ajay Thakur: Thank you sir.

Gagan Ahluwalia: Thanks everybody for joining this call. Copy of this will be transcribed and recorded copy of this

call will be available on our website shortly and I thank everybody and have a very good

evening.

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