"The fourth quarter numbers would see a reasonably robust demand profile. But we can't rule out the possibility of demand ebbing a little in the next few months. At the moment, things seem to be fine, but we are little bit cautious on the near-term outlook," he elaborated.
According to Duggal, rural GDP growth will be an instrumental factor in contributing to the company's business going ahead.
Below is the edited transcript of the interview with CNBC-TV-18
Q: Are you beginning to see any pressure on consumption, as the entire range of consumer durables are beginning to see weaker and weaker sales sometimes 12-year-lows being hit by some products. It is a far cry to expect that to come into the personal products segment, but are you seeing any fall in consumer demand?
A: Not at the moment. The fourth quarter numbers probably would see a reasonably robust demand profile. But we can't rule out the possibility of demand ebbing a little in the next few months because it normally lags that of the higher value products. At the moment, things seem to be fine, but we are little bit cautious on the near-term outlook.
Q: Is there any specific category where you perhaps have seen some kind of down trading or fall in consumption, maybe high value or discretionary kinds of products?
A: Not as far as we are concerned. We have comparatively few discretionary products in our portfolio. Most of them are staples at the lower end of the pricing pyramid. However a couple of items we have can be considered discretionary, like say the food beverages. These are showing pretty good growth and there has been no slowdown in the last few months. So, contrary to expectations, so far we have not seen any significant down trading happening.
Q: How are margins panning out? Do you witness any changes in raw material prices? Food inflation would impact prices of your raw materials, so is there pressure on margins from that front?
A: Aggregate margins remain flattish. I am talking about the gross margin levels on year-on-year (y-o-y) basis, which is a little bit disappointing because we did expect them to expand considerably this year. But that has not happened. It is largely consequent to very high food inflation. There have been pockets of friendly prices too in terms of say packaging material, the hydrocarbon derivative etc. By and large, the food basket has remained on a high note. We were hoping for a much better yield from raw materials this year.
Q: With some of your distribution initiatives "Project Speed" and "Project Double", you had gone seriously into distribution improvement. Are you getting any gains from that investment?
A: The gains are visible. We have shown volume growth of close to 10 percent which are perhaps ahead of both categories. Unless there is a significant slowdown in the market, we should be able to regain that kind of volume growth. I would attribute a large part of this to our rural expansion So, it has been very important, very successfully executed and will yield us long term dividends.
Q: Can you give us some guidance in terms of what you expect both volume and value growth to be in FY14? Would you do better than the current year?
A: Unlikely. I would peg it at current year levels which are close to 10 percent. That would be a reasonable expectation. High teens are practically ruled out. Mid-teens is possible if the year pans out to be much better than what the outlook currently is, but one would take a slightly conservative view in view of uncertainties and peg it around 10 percent. In fact, we have been giving an outlook of around 8-12 percent as a band, and 10 percent is pretty much where we think we will be.
Q: Will ad spends increase?
A: I don't think so. There may even be just a little bit of moderation in ad spends. If the outlook remains bearish, there would be pressure on companies to cut back a little in terms of new investments and new product launches. There may be a bit of downward pressure on advertisements. I don't think advertising ratios would be ahead of what we saw this year. They would at best be at current levels, perhaps a bit lower.
Q: What is it this year 14-15 percent?
A: Yes, around 14 percent odd.
Q: It could be that or a little less next year? What is what your estimate?
A: Yes, or maybe 50 basis points lower than that. I don't think there will be any dramatic movement and certainly I don't see any upward move unless the economic outlook brightens from what the current forecasts are.
Q: What is a good year for Dabur? Is it a good monsoon that constitutes a good year because raw material prices would be influenced as well as demand or is it general gross domestic product (GDP) growth like it is for several companies of your ilk?
A: Rural GDP growth is perhaps the single most influential factor as far as our business is concerned. Second is inflation because it does play spoil sport in terms of compressing demand. Monsoon is now becoming little less relevant as far as overall business is concerned.
Q: Will we see any inorganic initiatives? Are you still keeping your eyes open?
A: Probably not. The whole economic environment perhaps is on the conservative side. We see valuations in India as extremely high. We do expect valuations to correct going forward. So, we would rather conserve and sit on cash and wait for the right opportunity to come back at lower valuations, which we do predict will happen over the next couple of years.
Q: Your international business is about 30 percent of your total sales. Is it doing better even incrementally?
A: This year has not been as good as the previous year. There have been a host of reasons, but next year would be better than this one. It is a little bit more volatile than the domestic business. We do expect pretty good year from international business in FY14. There are couple of areas of concern like Egypt. If we are able to navigate those, it should be a pretty good year for the international business better than what we have had this year.
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