Dabur sees 5-6% inflation across commodity baskets4 min read . Updated: 14 May 2021, 01:22 AM IST
- Dabur India, the maker of Vatika shampoo, Real juices and Dabur Chyawanprash, has reported a 34% increase in its March quarter net profit
NEW DELHI : Dabur India, the maker of Vatika shampoo, Real juices and Dabur Chyawanprash, has reported a 34% increase in its March quarter net profit. In an interview, the company’s chief executive officer Mohit Malhotra spoke of the slower offtake of discretionary products during the covid surge, tailwinds for its healthcare portfolio, and battling inflationary pressures. Edited excerpts:
Your March quarter went well, but how do you see urban demand in April and May when covid cases surged?
Rural recovery last year was fantastic. The gap between urban and rural narrowed and went down from 1,500 to 800-to-600 basis points. But at the end of the last quarter, in our business, we saw urban was trending a tad higher as compared to the rural business in secondary sales. We saw a growth of around 30% in urban and 29% in rural.
But if we look at the trends in the month of April, which is the current financial year, we find rural is still doing well for us. But the urban business has got a little impacted by these selective lockdowns across states.
Urban demand, especially the discretionary piece, was impacted in the last 15 days of April with the acceleration in the covid situation. We saw a little pushback on the discretionary portfolio driven by urban India.
Grocery retail outlets are open only for three to four hours in states affected by lockdowns. So, the supply chains have got impacted. I see urban demand again plateauing a bit from the recovery that we saw. But we see a solid tailwind happening in our healthcare portfolio. So, the second fortnight of April saw a little surge in Chyawanprash, honey and immunity-building ayurvedic products. That’s a trend that is building up.
How do tailwinds in healthcare change your future product pipeline?
Our strategy is very well laid out. We have eight power brands. Of these, five sit in healthcare for us (including Dabur Chyawanprash and Dabur Honey), and healthcare has got a tailwind. But we have a high base of last year and, therefore, there will be a moderation of growth numbers. That said, the quantum of healthcare that we sell will continue to surge with the covid situation as the proclivity of the consumer towards the healthcare portfolio goes up. The penetration of healthcare is very low in India. Chyawanprash has a low single-digit penetration level. There’s huge headroom for growth.
I think that tailwind should sustain, and it should get ingrained in consumer behaviour, get reflected in the purchase patterns and, eventually, in our sales and profitability.
As a part of that strategic push, we will continue to invest in healthcare. We’ve done a couple of clinical trials on Chyawanprash, and those show there’s a 40% reduced instance of covid in the group that got Chyawanprash as compared to the other group. And the severity of the cases has been much lower.
This spree of innovations is contextual to covid and is also long-term. We launched Suraksha Chai, which is getting substantial traction, as is our single herb range like Giloy tablets. We are coming out with Chyawanprash tablets and powder format also.
You plan to augment capacity. Which product is this for?
We are going with an investment of around ₹550 crore in central India (Madhya Pradesh). What we want to produce there is Chyawanprash. We ran out of capacities last year on Chyawanprash. We augmented it but are running out of capacity again. This will be for healthcare, personal care and also some foods line for drinks. We made an entry into the drinks market—a much larger market at ₹7,000 crore, and we have an ambition of building our market share there.
What kind of drinks?
In Dabur Real, we were restricted to juices and nectars. From juices and nectars, we have gone into drinks, which is a huge market where we compete with Frooti and Maaza and the big boys there. Coke and Pepsi have also made an entry there. We think we have a franchise there with Real, which we can leverage in rural markets. Juices are at a price point of about ₹100. With drinks, you breach the price point, and you make the brand more accessible to rural with a price point of ₹10 and ₹20. We’ve already launched a Real Mini and a Real Apple Fizz. We will be extending the fizzy drinks portfolio — we’ll be putting a line of fizzy fruit beverages there.
Was March one of the most inflationary quarters?
We have seen unprecedented inflation in the March quarter. All the three quarters of last year were very deflationary.
Also, because the rupee was also kind of depreciating, so when we translate the results of the international business, which is 30%, we get an upside here. That upside vanished because the rupee started strengthening against the dollar.
Plus, inflation across commodity baskets has actually inched up. We’ve seen average inflation of around 5-6%, which is unprecedented. It’s been very severe in our agri basket—the spices and the edible oil portfolio. The second basket is more hydrocarbon-linked—which is the packaging material. All the PET bottles and the PVC bottles that you make are all derived from hydrocarbon.
And the packaging is a good 40-50% of the total mix that you make, that’s got impacted. Our hair oil portfolio and the oils portfolio, which is again petroleum-linked, has got impacted; edible oils have gone up. Honey has gone through the roof as the demand last year went up. Amla prices have gone up. We’ve tried to pass on this inflation by calibrated price increases of around 3%. But 3% wasn’t good enough.
We think inflation will continue in the first quarter and maybe carry on till the second quarter. We expect the softening of prices to happen in the second half of this fiscal year.
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