Dabur India Q3FY17 Concall Summary

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Impact of demonetization

  • Before demonetization, FMCG business growth was beginning to look up and Dabur witnessed double-digit growth in October after a few quarters of subdued demand
  • Post 8th November, because of the cash getting sucked out of the system, this led to both a reduction in consumer spending and huge trade dislocation
  • FMCG sales were severely impacted in November.Dabur also experienced sharp drop in sales during the month of November
  • In December sales did pick up but not fully as trade and wholesale channels continued to remain stressed and replenishment of cash was slow.
  • There was massive down-stocking both at the distributor and trade levels, particular in rural and northern and central India as these regions were more dependent upon cash.
  • Company was faced with multiple headwinds in its international business with currencies devaluing sharply in some of our key markets like Egypt and Turkey and geopolitical and macroeconomic challenges continuing in the MENA region.
  • Consolidated sales declined by 6.1% and consolidated profit after tax by 7.5%.
  • FMCG business declined by 6.8% in primary terms; however secondary sales which measures sales from distributor to retail reported growth of 0.7%.
  • Oral care business reported a decline of 5% in primary terms.
Dabur Regionwise Demon Impact

Categories Growth Trend

  • Hair care was impacted more than others due to higher rural and wholesale saliency for the category; the category reported a decline of 20%.
  • This was much lower in secondary terms around 12%.
  • Home Care registered around 5% decline in primary terms.The category recorded a growth of 4% in secondary sales.
  • Red paste and the Meswak brand both continue to grow quite well despite issues of demonetization.
  • Babool had a weaker performance which needs to be revised.
Dabur Q3FY17 Categories Growth Trend

Domestic FMCG Overview

Domestic FMCG segment contributed 66% to the Consolidated Revenue and showed a decline of 6.8% in primary sales value and 5% in volume. However, secondary sales reported growth of 0.7%.

 

Dabur Domestic FMCG Q3FY17
  • Secondary Sales for Domestic FMCG business grew by 0.7% as compared to decline of 6.8% in Primary Sales
  • Pipeline reduction of 10‐12 days for Domestic FMCG business during the quarter
Dabur FMCG Sales Growth Q3FY17

International business

  • International business now contributes about 5%
  • Egypt is growing at 30%.
  • Nigeria which was doing poorly is now growing around 20%
  • Turkey contributes 15% to 20%
  • GCC markets were under stress mainly due to macroeconomic issues in Saudi Arabia.
  • SAARC markets performed exceptionally well with strong growth in Nepal and Bangladesh lead by Juices and oral care categories.
  • Despite headwinds in international business: 
    • In Saudi Arabia, market share shows an improvement of 130 bps in oral care and 270 bps hair cream and 40 bps in hair oil
    • In Egypt market share showed an improvement of 430
      bps in Hair Creams; 30 bps in Oral care and 190 bps in Hair Oil
    • In UAE market share showed an improvement of 60 bps in Oral Care with stable MS in Hair Cream & Hair Oil

Market Share Outlook

  • Market share in Hair Oils and shampoo expanded by 20 basis points and 30 basis points respectively.
  • Volume market share in mosquito’s repellent creams went up by 420 basis points and air fresheners by 100 basis points.
  • Market share in Chyawanprash was lower by around 300 basis points over last year. It dropped due to demonetization.
  • Market share for Juices and Nectars went up by over 500 basis points over the same quarter last year.
  •  The share of Honey has dropped from 56% to 50% while Patanjali gained around 20%-30%
  • Domestic FMCG contributes 66% and International market contributes 30%. Others contribute 4%

Cost and Price Hikes

  • Increase of 300-350 bps in material costs.
  • Decline of 5% for the Domestic FMCG business.
  • Primary decline of 5% or thereabouts is entirely on account of destocking
  • But a volume growth of 12%-15% is anticipated.

Oral Care

  • Oral Care reported a decline of 5% in primary terms but was flat in terms of secondary growth
  • Nielsen data reported tertiary offtake growth in double digit leading to increase in market share by 70 bps yoy of the toothpaste category
  • Both the Red paste and the Meswak brand continue to grow quite well despite issues of demonetization and the competitive intensity having increased in this space. But the traction is still good, it has moderated a little bit so they are longer growing at 20% - 25%. Growth is still  well ahead of market  .Red Toothpaste reported growth while rural brands like Babool and Lal Dant Manjan were under pressure
  • Launched “Proof Hai TVC” to convey the superiority of Red Toothpaste as a most effective product has received good response
  • Dabur Red Paste ranked third in the Oral Care category of Most Trusted Brands Survey*

Home Care and SKin Care

  • Home Care category declined by ~ 5% however reported growth of around 4% in secondary terms .
  • Odomos mosquito repellants performed well with the more convenient formats‐ Spray, Patches, Bands doing well
  • Skin Care being more discretionary in nature was impacted by slowdown in GT and recorded a decline of ~ 11%. The secondary sales decline was lower at 5%

Health Care

  • Health supplements registered ~14% decline in Q3FY17 mainly on account of demonetization led pipeline correction; however in secondary terms the compression was ~5%
  • Aggressive advertising and promotions in Chyawanprash led to a high single digit growth in sales in December ’16
  • Digestives posted around 10% decline this quarter while in secondary terms this was ~6%
  • TVC for recently launched Hajmola Amrud was well received
  • Hajmola moved up in Most Trusted Brands* ranking to be part of top 5 brands in OTC category

Competition 

  • Honey market is down by few percent due to Patanjali.
  • Growth of honey business is expected to be  about 15%.

Launch of new products

  • New skin care and personal care products are still under research
  • The company is having a very interesting product called Madhu Rakshak which is based on its officially certified formulation, Ayush 82 Formulation. A clinical study conducted with Madhumeha (Non‐Insulin Dependent Diabetes Mellitus, NIDDM), demonstrated DABUR MADHU RAKSHAK ACTIV (AYUSH 82 powder) as effective in reducing fasting and post prandial blood sugar levels after 24 weeks of treatment
  • Madhurakshak Activ has been test launched in Ethical channel in a few states

Rebalancing of distribution

  • The wholesale is around 40% to 45%
  • 100 basis points - 200 basis points margin advantage from the introduction of GST is expected.