Homegrown FMCG major Dabur India said it has begun witnessing an uptick in rural growth rates and expects the consumption to be more resilient in the coming quarters. The company is also focused on developing Badshah as one of its power platform and is building a ₹500 crore-foods portfolio. Dabur India CEO Mohit Malhotra said that the company has a warchest of ₹6,000 crore and is open to more acquisitions provided they are margin accretive. Excerpts :
Have you begun witnessing recovery trends in rural regions ?
Rural regions’ contribution to our business is nearly 45-50 per cent, which is relatively higher than our peers. Over the years, we have put in significant distribution infrastructure in rural regions. Since the past two quarters, we are witnessing an uptick in rural growth. Volume is the key barometer of our assessment of the rural business and volume has now turned from red to black in rural. As the inflation is coming down, the cost of products is becoming cheaper, leaving more money in the hands of the consumers therefore spending is going up and rural consumption is picking up. The syndicated data indicates rural’s volume growth is at 4 per cent. For Dabur, rural is growing at about 8%. We are gaining market share in rural markets. While the harvest has been impacted due to unseasonal rains, the sowing for winter crop has been good and going forward harvest in the winter is going to be better. MSP rates have also gone up. Wage rate of MNREGA has gone up. Although one concern is higher MNREGA enrollments.
The development of infrastructure in rural regions by the government, has led to upgradation of lifestyle of rural consumers. They have got used to branded products. So I believe the rural growth is not going to be for the short-term but will be an enduring trend. With urban growing well and rural growth coming back, in times to come the consumption space will be resilient.
What is going to be the rural strategy for the future ?
In many categories, where we have a presence, rural continues to offer a huge headroom for growth. We have only achieved a direct reach of one lakh villages in rural regions compared to the total universe of around 6-7 seven lakh villages. In categories like Chyawanprash, where we are market leaders, the penetration is less than 10 per cent.
In categories such as soaps, hair oils and toothpaste, the penetration is 90 per cent. There we see strong opportunities to grow our market shares. So we are trying to get into more affordable price points and a pack price architecture that affordable to a rural,semi-urban, urban as well as commerce consumers.
With inflation pressures softening are you looking to cut back on prices ?
Our price elasticity to the consumer is not very high. We are into branded considered purchase products. Once we take a price increase we don’t roll back prices. As the inflation converts into a deflationary environment, we instead focus on giving better value to the consumers through promotions to bring down the effective price. To remain competitive, we also pass on some benefits to trade . We also launch bridge packs which are more affordable packs. So between ₹10-50 price points, one can launch packs at ₹20. Nearly 30 per cent of our portfolio in mass market categories comes from popular price points.
How is the foods business going to evolve post the Badshah Masala acquisition?
Food business is a mass- market “volume builder” business for us. In the beverage part of this business, we have got a structured playbook now. Our juice brand Real has been extended to Nectars and Drinks as well as fizzy beverage segment with Real Fizzin. This in line with our strategy of transitioning our power brands to power platforms.
The foods segment is growing at a very fast pace in the country. We believe Dabur has the right to win in the value-added food products segment. So we are focusing on creating a ₹500 crore- food portfolio. About ₹250 crore will come from Hommade portfolio and another ₹250 crore will come from the Badshah portfolio. In the first phase, we will keep Badshah’s presence limited to the Western region, where it is one of the leading spices brand. In terms of distribution, we are leveraging the Badshah distribution in the west for Hommade and we are leveraging the Dabur distribution for Badshah in the north. Badshah is a power platform for us and will help us strengthen our presence in the branded food space.
Are you scouting for future acquisitions especially in the D2C space? Will it be in India or in international markets?
We have nearly ₹6,000 crore lying on our balance sheet which is meant for acquisition purposes. So we keep scouting for potential targets. But that said we have a guardrail of profitability and Dabur is very careful when it comes to acquisitions. We will only look at acquiring a brand which is margin accretive to us. We keep evaluating a lot of start-ups in various categories including value-added foods, HPC and healthcare. Valuations have become muted in recent times. If we find a strategic fit, then we will acquire.
International markets are extremely volatile at the moment with a lot of currency fluctuations. We do keep scouting for targets in South-East Asia. But looking at the current conditions we would rather look at an acquisition in India, where we have great bandwidth, fantastic equity and strong distribution.