Dabur CEO bets on election push to rural recovery

New Delhi: India’s rural markets, where demand for packaged consumer goods has remained subdued for several quarters, could show signs of recovery as the coming general elections are likely to spur demand, said Mohit Malhotra, chief executive officer, Dabur India Ltd.

On Wednesday, Dabur reported a 6% year-on-year jump in domestic volumes. The maker of Real drinks and Vatika shampoo reported a 8% jump in the December quarter consolidated net profit to ₹514.2 crore. The company’s revenue from operations increased 7% to ₹3,255.06 crore during the same period. Dabur India had reported revenues of ₹3,043.17 crore in the corresponding quarter of the previous fiscal.

Meanwhile, rural demand for Dabur grew 200 basis points ahead of urban markets, bucking trends reported by competitors such as Hindustan Unilever and Marico that reported soft demand for their products in villages in the quarter gone by. Rural markets reported a growth of 6–6.5% in the December quarter for Dabur, while urban markets grew 3.8% year-on-year.

Investment in distribution footprint expansion in villages helped demand from the hinterland bounce back for Dabur, said Malhotra. The company has also “curated” a rural portfolio at accessible prices across its top-selling brands. “Rural growth has gone down in the past two quarters now, my hypothesis is because food inflation has started once again, or has not abated. So if you see fruits, vegetables, spices, cereal, etc., we have seen inflation pick up in the range of around double-digit now. In rural areas, where per capita incomes are lower, their incomes are skewed towards consumption of essentials, and therefore, discretionary spending gets impacted. We have given very contrarian results because of village expansion, our outlet expansion, and our portfolio curation. That’s why we could beat what the market is saying. But that said, there is year-on-year growth, as far as rural is concerned,” he said at the company’s post-earnings call on Wednesday.

Malhotra said consumer sentiment in rural India is showing signs of improvement. The upcoming elections could help spur demand. “If you look at the consumer sentiment in the market where rural plays a very big part, that is improving…and elections are approaching. So I think there will be a lot of government investments on infrastructure, which will help rural areas and also some dole-outs will be given by the government in rural areas which will only increase their disposable income,” he said.

“One very positive sign is that the gap between urban and rural (growth) is reducing over the past three quarters…So as the gap narrows between urban and rural with price going off (prices of packaged goods reducing), I think, rural recovery is imminent. Rural recovery is on its way and elections will only help,” Malhotra added.

Dabur has been investing in growing its rural footprint, which has expanded by 17,000 villages in the current fiscal, from 100,000 to 117,000.

On Wednesday, the company also gained the board’s approval to set up a new manufacturing facility in South India with an investment of ₹135 crore. The new unit will manufacture a range of Dabur’s Ayurvedic healthcare, personal care and home care products such as Dabur Honey, Dabur Red Paste, and Odonil air fresheners, the company said in a statement. South Indian markets account for an estimated 18–20% of the company’s domestic business. “Our business has scaled up in South India and today accounts for around 18–20% of Dabur’s domestic business. With south India’s contribution increasing, we have decided to establish a new manufacturing facility there to better cater to the local demand,” he said.

This project will mark Dabur’s first investment in South India and will add to its existing network of 13 domestic manufacturing locations.