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Rural growth story has flattened out: Dabur’s Sunil Duggal
Dabur CEO Sunil Duggal is concerned about the continued economic slowdown and erosion of discretionary spending owing to inflation
New Delhi: Although Dabur India Ltd, maker of brands such as Vatika hair oil and Real fruit juices, reported a 23.4% jump in second-quarter net profit to ₹ 249.74 crore, chief executive officer Sunil Duggal is concerned about the continued economic slowdown and erosion of discretionary spending owing to inflation. Edited excerpts from an interview:
Which categories have been the worst hit in the slowdown?
The growth numbers (for the industry) have come down to 3-4%, as per Nielsen. But in some categories, they are in the negative. That’s the lowest we have seen in the last three-four years.
Even rural growth—which was really shoring up the aggregate growth—has come off now. The rural growth is now more or less equal to growth rates in urban market, and both of them are now in the low single digits. This has been happening in the last four quarters and the trend is downward.
We’ve invested hugely in rural infrastructure, so we were seeing higher growth in rural markets. But the growth rate in rural, which was spectacular over the last couple of years, is now trending down. The rural growth story seems to have flattened out.
What about the impact of the good monsoon?
Theoretically, a good monsoon, the NREGA (Mahatma Gandhi National Rural Employment Guarantee Scheme), UIDAI (Unique Identification Authority of India), higher minimum support price (for foodgrains) and general election spending should rev up the rural economy, but till we see it, we won’t take it as a given. If it doesn’t happen, we do have an issue.
But you said you have invested in rural infrastructure.
We more than doubled our touch points in rural India from around 15,000 two years ago to 33,000 now. We call it Project Double. It’s almost 36,000 as we speak. By getting out of the wholesale loop in many of these touch points, we are able to supply our products to these markets. The only bottleneck is that the economy is not doing as well as we expected it to.
The rural infrastructure was built on the back of a very robust economy we saw two years ago. We put in this huge amount of money and I don’t have any regrets in doing so because it has given us a payback. But has it given us the full potential of what we anticipated? The answer is no. And I would only blame the fact that the economy has really underperformed.
What is your biggest concern right now?
I am more concerned about the demand side than about margins. I think we have enough weaponry to manage margins either in terms of price increase or in terms of management of cost. We also have an overseas business which is generating very high margins, so that can mitigate some of the erosion here in India. But I think the demand side is what is worrying us and that’s harder.
Any changes in policy that may help the sector?
There has to be more reform and better execution. There is too much money locked up in non-productive assets and, I think job creation is the only way you can generate income without fuelling inflation. Otherwise you keep giving money away and at the end of the day inflation eats up into a lot those gains.
Dabur is expanding its categories fast—from men’s bleach to Real dairy products. Is this your entry into the premium segment?
We have, quite honestly, been a little conservative in expanding our portfolio. The mood is a bit defensive. Having said that, we have launched a fair number of products—new juices, hair oils, Chyawanprash—because they were already in the pipeline. Since planning and ordering is done, you can’t back out. But was this the right time to launch? Probably not. However, if they survive in this sort of economic environment, they will fly in a better economy.
Did you launch these premium products for a bigger game in the future?
That depends on the India story. India’s growth was taken as a given three years ago. Today, if you talk to investors, they don’t even believe in the India story any more. Can you hold your hand to your heart and say India will grow at 10% three years from now? I think the level of confidence is very low.
By when do you expect growth to revive?
I wish I knew. This won’t be a good quarter. But for the aggregate consumer demand, there is every possibility that the fourth quarter of this year will see much better demand because that’s when you can see the full impact of the rabi crop, money in the hands of the farmers and elections. But nothing is to be taken for granted.
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First Published:6 Dec 2013, 12:26 AM IST
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