Dabur India Ltd. Earnings Call Insights: Namaste Business and Skin Care Portfolio

Dabur India Ltd. (500096) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Namaste Business

Percy Panthaki – India Infoline: My question is on the Namaste business, basically out of the 16% growth, would you be able to clarify how much is driven by currency?

Unidentified Company Speaker: 13% is constant.

Sunil Duggal – CEO: In dollars, its 13% and 3% gains.

Percy Panthaki – India Infoline: Also wanted to understand for Namaste, basically I mean in the last few quarters, where the business was disrupted, I’m sure the margins also would have come down, so from that level, how much of expansion potential do you see over the next two or three quarters when the business reaches a sort of a stable state versus what it was two or three quarters back, what would be the differential margins on Namaste?

Sunil Duggal – CEO: Well, we have recovered some of the lost margins, and the balance probably will take another few quarters before we get back to the margins which we saw in ’11-’12, so ’12-’13 obviously showed a severe erosion and we have made a part of it and the balance we are pretty confident of doing that by the end of the year.

Percy Panthaki – India Infoline: So, from the lows till the highs which you are expecting in the next two or three quarters, what would be that differential, would it be like almost a 1,000 basis points or something like that at EBITDA levels…?

Sunil Duggal – CEO: I don’t think as much as a 1,000 basis points, but perhaps around 500 to 600 and that kind of range. That’s something which you can look forward to, nothing to be taken for granted here, but that is the recovery plan as we see it.

Percy Panthaki – India Infoline: My second question is on ad spends. I mean in the base you had a very high ad spend of 15.7% and we were expecting that on this high base we should see some substantial savings, but the savings has been really very small. So what is the reason that we have still kept ad spends at such a high level in spite of the guidance earlier that we would see savings? So what is the view for the rest of the year?

Sunil Duggal – CEO: I think we have guided 13% to 14% for the full year. We probably will stick to that. I don’t see any change in revising the guidance. They are typically a little bit (high on this) in the first quarter of a low revenue base, so the ratios are normally higher. They should ease off now from the second quarter onwards and we will see a lower trajectory in terms of ratios. But the guidance remains. I don’t see any reason to change it.

Percy Panthaki – India Infoline: But sir, would we on a full year basis see a savings in the ad spend as a percentage of sales given that FY’13 ratio was 13.6%. So if you are guiding 13% to 14% range, if at the higher end of the range, we could actually see ad spend going up YoY?

Sunil Duggal – CEO: I mean I can’t give a sharper outlook than 13% to 14%. So, there is a possibility it could be higher, but I suspect we will be able to keep it at the lower end of the band rather than the higher. But I won’t hold out any assurance to that fact.

Percy Panthaki – India Infoline: Lastly, would you be able to tell us some housekeeping numbers in terms of the overall international business, what would be the constant currency growth and also, what would be the volume growth within that? Specifically, for the toothpaste business, if you could share the volume growth number?

Sunil Duggal – CEO: Well, if you take the international business, you can take the overall growth of – which is 17.5%. The composition of that is volume 15%, price minus 0.7%, there has been actually a deflation there because mostly in the MENA region and translation of 3%. So that aggregates to 17.4%. Am I right, Gagan?

Gagan Ahluwalia – Additional GM, Corporate Affairs: Yeah, correct.

Sunil Duggal – CEO: So 15%, price minus 0.7% and translation 3%.

Percy Panthaki – India Infoline: For toothpaste, if you would just tell me the volume growth?

Sunil Duggal – CEO: Toothpaste volume growth, again the total growth in toothpastes has been 14%. We will not be giving you the breakup.

Gagan Ahluwalia – Additional GM, Corporate Affairs: We don’t give it category wise.

Sunil Duggal – CEO: We don’t give it category wise. So you’ll have to excuse us. But since toothpaste is such a focus area, we give it in terms of the revenue growth, which is 14%. But you can take it – that – majority of this is volume, there is not a big price increase. You know the Babool issue in terms of the pricing, et cetera. So the price increases have been pretty muted. There has been some price increase, but pretty muted.

Skin Care Portfolio

Parineeta Poddar – ICICI Direct: This is regarding your Skin Care portfolio. I would just like to know how is Uveda planning out and how are the sales for that coming up? Second question would be regarding your share of rural sales in the overall sales for the quarter and in FY’13?

Sunil Duggal – CEO: As we have mentioned in the earlier con calls, the Uveda portfolio is still being driven on ground (tools) by direct sales promoters, et cetera. So it’s a pretty limited exposure which we have. We always look at the possibility of taking it now mass, and because that is the intent for the growth of Uveda. Quite frankly, we haven’t found the timing suitable for that because of the economic conditions, a, and the demand crunch and other constraints which we have. So this is not really the optimal time to spend a lot of money in taking it – making it (mass). So we’re still incubating it and as and when we find the opportune time, then we will take it more powerfully forward…

Parineeta Poddar – ICICI Direct: About the share of rural sales in the overall sales for Dabur in FY’13 and during the quarter, has it improved or has it remained the same?

Sunil Duggal – CEO: Yes, it has improved, because rural growth has been much higher than urban growths, and therefore the ratio is improving towards rural.

Parineeta Poddar – ICICI Direct: So could you give me a fair number, like a number around – ballpark number around how much would be rural and how much would be urban?

Sunil Duggal – CEO: Well, it’s not an easy question to answer because it, a, depends upon how you define rural. Now, we define it for (indiscernible) of something like 10,000 and there could be different definitions. But, let’s say, by our definition around 47% is rural.

Parineeta Poddar – ICICI Direct: 47%?

Sunil Duggal – CEO: Yeah, 47% is rural, and this is going obviously keeping ahead of urban, because we are seeing higher growths in rural. Also, I think as far as the overall consumer categories are concerned, rural growths once again have crept, not just crept but left ahead of urban growth. They are much higher than urban. So the whole portfolio shift is happening towards rural.

Parineeta Poddar – ICICI Direct: So can we say that it would be like twice what urban growth is witnessing like…?

Sunil Duggal – CEO: Not twice, but it’s 1.5 ex rural growth, that is for the category as a whole. For us, it’s not dissimilar. It is around the same.