The Hindu Business Line : `Realignment helped achieve improved margins'

NOTWITHSTANDING the decline in margins and the resultant pressure across the fast moving consumer goods (FMCG) industry, Dabur India Ltd has managed to post a healthy growth last fiscal. What's more, it has continued the trend into the first quarter of 2004-05 with its bottomline growing by 84 per cent on 15.6 per cent higher sales.

The Chief Financial Officer, Mr Rajan Varma, while speaking to Business Line, attributed the growth to a disciplined cost management programme and the realignment of the company into a pure FMCG entity following the demerger of Dabur Pharma. Excerpts from the interview:

Dabur India is one of the few FMCG companies whose bottomline grew by a whopping 40 per cent last fiscal and then doubled to 84 per cent in the first quarter this fiscal. How was this achieved?

It is a combination of a lot of factors. Gross margins were up to 38.4 per cent in the first quarter even when we took no price increases and, in fact, cut prices in some products. We have been able to control costs, both direct and overheads, despite higher salary payouts. As this goes on, growth will be more positive due to our continuous cost management programme. We also saved on excise duty as a result of moving into excise-free zones like Jammu & Kashmir. Besides, there has been a very major reduction of interest and working capital has been managed very, very effectively. More and more emphasis on improving productivity of employees has also contributed to overall growth.

Do you think such exceptionally high growth is sustainable? What about sales growth target this fiscal?

The relativity of these percentages must be seen in relation to their denominators. I am not very sure that it will be an 80 per cent bottomline growth right through the year, but it is going to be a reasonably high, double-digit figure. At 15.6 per cent, topline growth is already reasonably close to reality.

What is the company's debt-equity ratio at present? Is the company looking to raise debt to part-finance its expansion plans since you have been talking about inorganic growth through brand acquisitions?

We have very nominal debt. As on March 31, total loan was only Rs 39.8 crore of which Rs 14 crore was interest-free. For all practical purposes I have no borrowing. I am using surplus cash, which I generate to keep the loan component down. Also, today DIL has Rs 100 crore plus invested in liquid mutual funds. And I am generating cash every day. Depending on what the acquisition amount is, we can borrow since we are almost a zero debt company.

Last fiscal the company realigned its brand architecture to focus clearly on five brands with each denoting a well-defined product area. In what way has this realignment helped achieve a healthier bottomline?

The realignment has meant improved productivity for DIL as a company. We are now more focused and this is beginning to show results. Earlier, there was a mish-mash and realignment has been responsible for improved margins. Also fixed costs get neutralised due to this.

Across the FMCG industry, margins are getting squeezed following a series of price cuts even as the input costs have been increasing, particularly over the last couple of months. How has the company managed to contain these inflationary pressures while restraining itself from increasing end prices?

I have already explained the extensive cost management programme. We also manage to cut costs through our e-procurement system. We as a company may or may not have control over commodity prices, but our marketing and purchase guys are taking futuristic positions and even though this practice constitutes a business risk it is beginning to show results.

Last fiscal was the first full year after demerger of the pharma business. How has it benefited DIL? Does this FMCG focus mean long-term benefits for the shareholders?

The pharma business was completely different, so were its R&D needs and distribution structure. DIL has achieved business synergy by concentrating on FMCG.

Overall sales of DIL obviously decreased after the demerger by Rs 150-200 crore, but there was no impact on bottomline because pharma was virtually a breakeven venture with Rs 7-8 crore PAT. In a sense, this demerger has been God's gift because we are more focused now.

Where do you think DIL will be in terms of financial parameters over the next three to five years?

Certainly among the top five FMCG companies. We see 10-12 per cent topline growth year on year but I will not like to speculate on the bottomline. Profit growth will obviously not be something like 80 per cent because the base has been enlarging.

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