Leadership Thoughts-Sunil Duggal
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We intend to have almost 10% volume growth: Sunil Duggal, Dabur CEO

What are the questions investors asking you? What is your outlook?

I think the major question is when do we see revival of rural demand which has been the biggest overhang over the last one-and-a-half years. Then the different type of competitions, some of it is disruptive in nature. It is something which is being asked all the time. So people are concerned about the demand revival and changes on the ground with regard to the competitive environment which has not been experienced so far.

What is the strategy at Dabur to tackle all the challenges? Will you be going for price reduction?

Well we are doing two things. First, we are banking upon revival of rural demand, starting perhaps early next year in the second quarter or even in the first. We are revitalising our distribution and further extending it. So that is one side of the coin. The other side is we are premiumising our urban portfolio to counter the competitive threat and to take advantage of the premiumisation which we believe is happening. So, there is a lot of work being done. We are pretty optimistic about the future. We do see demand revival coming back after two years of subdued amount, perhaps early next year and we are poised to take advantage of that.

When volume growth is not there, you cannot increase prices. New players have also entered the market at a much lower price point. So, do you think increasing prices is going to be impossible for FMCG companies now?

The lack of pricing over the last few quarters has been largely a consequence of deflationary trends and not so much on account of the competitive pressures. There are many areas where we compete with these disruptive competition and there are areas where we do not. Even in areas where we do not have competitions, we really have not taken up prices because of strong deflationary tailwinds. Now we are going to see the end of lot of such deflationary pressures, particularly in the agri commodity space. So, we will be taking up prices in a very calibrated manner in the next year. Pricing next year should be a little higher than what we have seen in the current year, because we anticipate fairly high level of inflation in many agri commodities, even if the oil table continue to trend low.

How Dabur is dealing with Nepal issues and increasing competition in ayurvedic products?

Nepal is now back to normal. The borders have opened and Supplies have resumed. We expect the beverage business to come back strongly starting this quarter and then into the summer months. So, Nepal problem is behind us now. We are also making redundancies in terms of supply chain building, new capacities so that even if Nepal is disrupted once again, the products will be available all times. We are also trying to take the high ground in ayurveda by saying that we are science based ayurveda and many of our products would have enhanced consumer preference because of this positioning.

As percentage of your total sales currently how much is coming from semi-urban and rural?

At the moment, around 45% is coming from rural. This might go a little bit higher, because we do expect good demand coming back in the rural areas. So, 50-50 is a fair estimate for the next financial year.

Let us say 45% of your market is under pressure, what about the remaining 55%?

I think the urban demand has neither cracked nor grown. It has fallen off actually a little bit, not as much as rural, but there has been some pressures on urban too. Still, I think urban remains a reasonably constant figure for us. That is something which we will be focusing again in addition to expanding our rural networks. So, we expect to get growth from both and how it will play out remains to be seen. But, both are critically important to us.

Almost 30% of your international business is in the Middle East, you must be facing a lot of problems over there because of the slowdown in that region?

I do not think the crash in the oil prices etc have derailed the economies to the extent of impacting staples demand. Our problems are more political in nature with many countries being shut down because of the ISIS issues and these are some pretty large markets and it has put pressure on the overall business. The core GCC markets continue to perform well, although the peripheral markets in North Africa and the Levant region which are affected by the ISIS issues still remain under pressure.

For rural spending to go higher commodity prices also have to go higher. Assuming that commodity prices will not revive, what is the plan in place to revive the rural demand?

I think commodity prices are reviving. We have seen the prices for edible oils and sugar going up sharply in the last couple of quarters. This trend will become more secular and extend to other commodities in the agri space in coming months. After two very bad monsoons the agrarian economies are so badly off that they can only get better from here. The odds are in favour of a third monsoon becoming more benign and that will be a big booster to rural incomes. Also, the government is far more inclined today to extend far larger doses of stimuli to boost the rural economy than they have been doing in the last one or two years. We have seen some indication of that in the enhancement of the MNREGA schemes and we do expect that the minimum support prices would go up more sharply this year as compared to the previous years. overall, I think there would be a lot of stimulus through various mechanisms for the rural economy and that would boost consumption, demand and we would definitely benefit from that.

What do you think could be the volume growth for the industry for this year and within that where do you see your positioning?

It is very hard to give analysis of that, because it is a diverse industry with many components. I think the volume growths would trend towards the high single digits, in the region of 5-10 and that is my best estimate. I do not think they will cross 10 so it is not going to be a very sharp revival in terms of staples demand. It certainly will be better than last year. Also, we will be coming off a lower base. We certainly intend to have volume growth closer to about 10% level. We will try to push it into double digits, even though at this point of time that looks bit unlikely. A lot depends upon monsoon and if the monsoon is benign it will send good vibes across the whole consumption space and expedite consumption in an accelerated fashion.

Disclaimer: This info has been published and collected from various public & secondary resources.