Dabur India Limited Earnings Conference Call” Call/100096_20091027.pdf · Dabur Amla Hair oil reported a 13.5% growth during the half-year and 12.5% during the quarter. Vatika Hair
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"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
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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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