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Dabur India Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 Results Investor Conference Call of Dabur India Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Ms. Gagan Ahluwalia. Thank you, and over to you, ma'am.
Thank you. On behalf of management of Dabur India Limited, I welcome you to the conference call pertaining to the results for the quarter ended 30th June 2018.We have present here Mr. Sunil Duggal, CEO Dabur India Limited; Mr. Mohit Malhotra, CEO India Business; Mr. Lalit Malik, Chief Financial Officer; Mr. Ashok Jain, Vice President, Finance and Company Secretary; and Mr. Ankush Jain, Head Financial Planning and Analysis. We'll start with an overview of the company's performance by Mr. Duggal, followed by a Q&A session.I now hand over to Mr. Duggal. Thank you.
Thank you, Gagan. Good afternoon -- good morning, ladies and gentlemen. Welcome to Dabur India Limited's conference call pertaining to results for the quarter ended 30th June 2018.On a comparable constant currency basis, consolidated revenues from operations grew at 19.6%. Domestic FMCG business witnessed like-to-like growth of 23.7%, driven by one of the highest ever volume growth of 21%. Consolidated operating profits increased by 25% in spite of high media spends, which grew by 46% on comparable basis.Consolidated operating margins expanded from 17.3% to 18.6%. If we exclude the GST impact, improvement in operating margins was around 80 basis points. Consolidated profit after tax reported growth of 24.6% for the quarter.Standalone India business reported growth of 24% on a like-to-like basis. Standalone operating profit grew by 35%, in spite of media spends increasing by 48%.SG&A expenses reflected some savings on account of cost synergies. PAT reported growth of 35.9% in standalone, in spite of the sharp increase in A&P expenditure. The revenue growth was broad-based with all verticals showing strong double-digit growths.Health care portfolio reported growth of 23%. Health supplements grew by 27.5% led by strong double-digit growth in both Chyawanprash and Honey. Market share in both categories reported an uptrend. Dabur Honey continues to rise on its strong brand equity and above the line spends, which are adding to the momentum of the brand.Digestives category recorded 21.6% growth on the back of good growth in Hajmola tablets. New variants, focus market inputs and distribution expansion contributed to driving this growth. OTC and Ethical grew by 16.9%. OTC products, such as Honitus, Madhuvaani, Lal Tail and Mahabhringraj Hair Oil posted good growth backed by marketing initiatives and activations. The classical Ethical portfolio grew by 23.4% led by medical marketing initiatives and on-the-ground activation.HPC vertical posted growth of 19.7%, led by strong performance in Hair Care and Skin Care. Hair Oils category registered growth of 18.8% on the back of strong growth of 45.3% in Coconut Oil category.Volume market share in Hair Oils moved up by 70 basis points vis-à-vis the same quarter last year. Shampoo category posted robust performance growing by 30.3%. This is the third consecutive quarter where this brand has grown at 30% plus.Oral Care category grew by 17.3%, with growth of 16.8% in Toothpastes. Red franchise continues to perform well, driven by increasing penetration, aggressive marketing and visibility initiatives.Home Care category grew by 17.4% this quarter, due to strong performance of Odonil and Sanifresh. Skin Care registered growth of 27.1%, driven by strong performance of the Gulabari portfolio and Fem bleaches.OxyLife, which is on a premium platform, posted strong double-digit growths. Facial kits and Fem hair-removing cream also performed well.Foods business has made a strong comeback with growth of 26.1%, driven by good momentum in the beverages portfolio. Along with increased sales growth, profit margins in Foods saw an improvement of 380 basis points on account of network optimization and lower input costs.Various strategies are being adopted to counter competition, including aggressive media spends, tactical consumer promotions and samplings. We have also launched a new Ethnic range of juices under the Real brand with 3 new variants.International Business reported growth of 11.5% during the quarter, with constant currency growth being 10.5%.GCC market posted strong revival with 17% growth, led by Saudi Arabia, which grew by 54%. Egypt market continued to perform well with growth of 31% in constant currency. Turkey registered constant currency growth of 37%, although currency devaluation brought it down to around 11% in INR-translated value.Namaste [ flour ] turned around with good improvement in profitability and double-digit growth in the sub-Saharan and African regions.The year has started well with some green shoots in demand, normal monsoons and great coming back to relative normalcy after the GST disruptions. We will continue to invest strongly in our brands, distribution and infrastructure to continue to grow ahead of the market and enhance shareholder value.With this, I'll now open the Q&A and invite your questions. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is, in beverages, NPD is around 3.8% of the revenue. In terms of the overall India business and in some of the categories where you want to call out, what is the similar NPD number?
The NPD other than beverages has been pretty muted in the last 1 year. We haven't done too much other than Red and Red Gel and a couple of other initiatives, but the situation did not permit a whole lot of new product initiatives, which we will start doing now. So I think we've a strong pipeline of new products, which we will take to market in the quarters ahead, particularly in the second half of this year. So by the year-end, you will see a considerable amount of acceleration in this base of growth.
Sir, in the Toothpaste, Red has done quite well in spite of Toothpaste base being 10% growth. So if you could tell us, in terms of the Red Gel, are you able to get new customers? And in terms of the non-Red Toothpaste portfolio, how has been the performance? What is the way forward? And in terms of the category, are you seeing lesser advertisement, in general, by the players in the Toothpaste and more promotion? And if that is the case, what will be your strategy?
Well, to answer your first question, Red Gel is doing reasonably well. I think we need to accelerate the growth, and we have some initiatives in the pipeline to enable us to do that, including some formulation changes, et cetera. The other Toothpastes have been a mixed bag. Meswak has done well, strong double-digit growth. Babool has not. Babool has actually declined marginally over the previous quarter -- over the base quarter. And that's because of the very high competitive intensity at the INR 10 segment. So again, we have plans to resurrect Babool and relaunch it in a different kind of formulation, et cetera, in the next couple of quarters. So Babool, I think, will come back to normalcy, but with a lag of quarter or 2. Red continues to grow ahead of 30%, and that's amazing considering the high base. Meswak is a very steady performer. So the value-added segment of Toothpaste is doing well, the discount segment is not. So overall, the blend is to our favor, but we need to do something about Babool to push the momentum forward.
And sir, in terms of the category advertisement and promotions, are you seeing a change in the mix in terms of the advertising?
Yes. I think the new entrants into the herbal space are advertising pretty aggressively, particularly Colgate. So that's one dynamic, which has changed. I don't think the overall intensity has increased. But there is a pronounced shift in advertising away from the traditional Toothpaste to what's herbal, particularly by the market leader. And this might continue, but it's not very clear, but overall density, I think, is pretty normal. Am I right?
The trade spend is the category that we enormously grown up and the price decreases -- to the category growth also. The value growth are muted, but the volume growth are very high, almost double of the value growth. The trade intensity and competitive intensity in the trade level has gone up as media. And we see going forward, I think, media is also intensified by the competitors.
I think it's reasonable, nothing extraordinary below the line in terms of -- a particularly sharp reduction in prices by the new herbal entrants are really the standout feature of the last quarter or 2. But I think we're still pretty happy about the performance of our value-added portfolio. Despite all these challenges, we have been able to hold our head without starting to any great level of discounting.
Sir, one follow-up here, so have you seen any impact from Vedshakti and Ayush? And on the gel portfolio, you expect some impact in the coming quarters because of this?
Well, I think the Colgate offering, the cheaper one, perhaps, is taking some share away from the discount players, but pretty marginal. And the other brand doesn't seems to be really very material at this point in time. But it's a very aggressive price strategy, more than anything else, and -- which can be countered, but otherwise, I don't think the Red franchise has, in any way, been impacted. Perhaps to some extent, the Babool -- lack of performance in Babool is a consequence of this very aggressive discounting by the market leader and -- I mean, this is only hypothesis. We still have to study the household panel data, which will show where the movements are happening. But that's -- this is a possible move in that direction. But then that's a very sharply discounted segment with very little margin upsides. So not something which hugely excites us. We're looking at perhaps more offerings, but at the value-added segment, not -- which offers sensible margins, not really this INR 10 price point strategy.
Sir, my second question is on the beverages, growth has been good at 27%. In the past quarters, you had mentioned that ITC and Paper Boat have become very aggressive on the pricings, promotions, et cetera. So we could talk about that? And in terms of market share, also, I think, you had lost some market share. So any improvement in the market share?
Yes. I think what happened in the third quarter was that there was a sudden outburst of very aggressive discounting by a couple of smaller players in this space. And it did -- does take us around a few months to react because there is a basic change of what -- the time in terms of the laminate and putting into promotion, et cetera, et cetera. So we were not able to do it in the fourth quarter, and therefore, you saw a fairly muted growth in the fourth quarter. But I think the revival has happened very strongly in the first when we have challenged those initiatives of the new players. And the underlying franchise is so strong that we were able to quickly get back to high levels of growth, which perhaps will be ahead of most of the competitors. That is reflected partially in terms of revival of market share, the discount arrival. I think it will be resolved with a lag in terms of the Nielsen numbers. So I suspect that the numbers in this quarter will reflect fully to the extent of our market share gains or how much we have regained in terms of the earlier couple of percent points we lost.
Sir, one follow-up on this business, you mentioned the margins are expanded because of network optimization and RM. Could you talk about that?
Yes. We see some freight savings, but I think largely the input cost have been lower. And despite the fact that the rupee has weakened, so the imported pulp is a little bit more expensive, but aggregate, we've been a little bit lucky that the input costs have been fairly benign in the beverage space, and the network optimization is a big component of input costs.
[indiscernible]
We have moved our manufacturing to local costs [indiscernible] reduced dependency on Nepal and Sri Lanka.
Yes. Now the blend is around 40% domestic manufacturing, 60% Nepal. It was earlier on little bit more in Nepal. And the network cost out of Nepal, obviously, more. And -- but that also offers us benefits, et cetera, which make it very economic to produce that. So that's, I think, [indiscernible] is the main cause. Also consequent to GST, there has been some rationalization of freight, which is a process that has only begun, but we've seen some upsides in freight, despite the very high prices of diesel.
Sir, last question, in terms of Honey and Chyawanprash, pre-Patanjali entry and current, what is the category size? And where is your market share in terms of this?
Actually it's impossible to give an answer to that, because there is just no data available. We can only triangulate, use household panel data, et cetera, et cetera. So I prefer to let the dust settle a bit before giving you a clear answer. Definitely, the growth which you've seen over the last 2 -- actually 3 quarters now in Honey, do -- would indicate sharp increase in market share. Precisely how much? Perhaps we can give you an answer when the household panel data comes up -- which will be when? Next month?
[indiscernible]
But when the household panel data comes, I think we can give a slightly more sharper picture of how much share we have and how much we lost, how much we've regained. But I think we're back to the highest ever levels in both revenue as well -- and definitely in terms of tonnage because there has been some price reduction. Fortunately, the Honey and Food cost have been benign, so the price reductions which we've done over the last 1 and 1.5 years have not really helped us. And there's been some impact in terms of the lower GST rates also. So overall, I think, Honey is a very strong -- look, it's a very powerful brand with a lot of momentum.
Next question is from the line of Sameer Gupta from IIFL.
This is Percy here. Sir, just looking at your numbers, like, they are really good and congrats on the results, 21% volume growth. But it also comes with a low base. So the way I am looking across all companies, I'm looking at 2-year CAGR numbers to adjust for the base. And that is at around 7.5% to 8% 2-year CAGR, which is also very, very healthy in the given environment. I'm just wondering how to look at this going forward? For the remaining 9 months, your average volume growth in the base is around plus 9 versus a minus 4.5% this quarter. And if I am to maintain the same 2-year CAGR, that will yield me a sort of volume growth for about 7.5% to 8% for the remaining 9 months on a Y-o-Y basis. So is this the right way to look at it? Or, I mean, is there some other way that is more appropriate?
Well, personally, I will be very disappointed to show a mere 7% growth going forward. But keep in mind, the last 2 years' CAGR is on the back of massive disruptions, whether it was demonetization, GST and northwest in particular, disrupted competition, largely in HPC from you know the player, and also little bit in beverages. So now if you're able to navigate that -- I'm sorry, and on top of it, we saw a period of very slow consumption trends over the last 2 years. So these are massive, massive headwinds. And despite it CAGR grew 7%. I think we can look forward to better growth in the quarters ahead because many of these headwinds now appear at least to have, if not completely disappear, at least, weakened. You are seeing some revival of category growths. The first quarter numbers are pretty poor, actually, at this point in time, but green shoots seem to be visible in terms of what we are looking at in terms of June exit. Now 1 month, of course, is not something which we can extrapolate. But I think there is every reason to believe that category growths are going to go up, going to accelerate on the basis of now what it appears to be a normal monsoon and the stimulus which the government will pump in perhaps more than anything else, and it will be just the first manifestation of that, I think it will further accelerate. So I see demand particularly in rural trending up and trending up perhaps sharper than what we would normally expect. So on that hypothesis, a 7% growth obviously is not going to be good enough. We should look at something much more, because -- in addition to what's happening in the category growth, we -- our business has a lot of momentum, and we have a comparatively soft base even going forward. So let's see how it goes. But I think that this year we should be able to do double-digit volume growths, in fiscal '19.
That is for the remaining 3 quarters or for the full year put together?
No, I'm talking about the full year. I'm talking about the full year. It's very hard to predict remaining quarters, et cetera. But if you take the full year, double-digit volume growths seem to be something which we definitely have to aspire to.
Right. Right. But I mean, for the full year, you will reach a double-digit volume growth even if you do a 7% to 8% for the next 9 months because the first quarter is so high?
You are very clever, so -- but having said that, I -- we don't give outlooks, we don't get better results. But we're looking at good growth in the quarters ahead on the back of this extremely good growth in the first quarter.
Fair enough, sir. Secondly, on international business, we've had this quarter a very soft base. But in spite of that the growth hasn't been that great. So could you just disaggregate that and tell us what are the different drivers of different geographies? And how you expect these to pan out in the next 3 quarters?
MENA is going to remain a little volatile. And -- but it will be much less -- I think it will be much better off than last couple of years. But the volatility is almost embedded in that business as of now; so is the sub-Saharan Africa. Yes, but there are some green shoots appearing in Namaste. I think Namaste will be able to deliver reasonably strong growth in the top line and very high growth in terms of margins. The North African business -- particularly Egypt seems to be doing well. We had a bad run in Algeria for the last 1 year, which now may be behind us. So Algeria will pick up. But then there is always negatives, and the big, big negative is Turkey, where despite extraordinary growth as far as the local market is concerned, 30% plus, we still get only perhaps 10% to 11% growth in INR terms. The currency devaluation remains unabated. Iran is another pain point, even though the market is small, but we did have high expectations on Iran, but the recent sanctions have perhaps made our plans now look a little aggressive. The currency will be -- we budget the currency at around IRR 60,000 -- sorry, [ bhat ] to the dollar, it's now INR 100,000, and these are big changes, which make the business model very fragile. So it's a mixed bag, but overall, I think, International Business this year will deliver a much better performance than in the previous 2 or 3 years. There's no doubt about it. How much more? It's, like I said, it's very hard to predict.
Right, sir. And last question on margin. Your margin in FY '18, EBITDA margin at around 21,%, has been the highest in the past several years. So now in FY '19, are you targeting margin expansion? Or you would be happy to maintain these levels?
I'd be happy to maintain these levels on the back of a very good volume growth. Now again the strategy of this company is today and always has been is to really focus on the volume growth, without diluting the mix so that a stronger growth margin profile emerges and -- sorry, a strong net margin profile emerges, and they knew some operating leverage to push up margins to whatever extent it can. But sometimes when we move our actual line well ahead of our top line as we did last quarter, there can be some impact on margins, but it's of a temporary nature. This is a top-line-driven business. We have 50% plus margins. And unless we do something silly just by growing the top line will mean that the margin expansion would happen. So we keep a very sharp focus on revenues and not really have a margin of session that I will deliver x percent EBITDA or y percent EPS. That is a outcome really of the top line performance.
The next question is from the line of Latika Chopra from JPMorgan.
My first question was, over the last 1 to 2 years, we have seen you competing very effectively and aggressively in categories like Honey and Juices, to protect your market shares and then we saw various rural go-to-market initiatives coming through. In your view, over the next 2 to 3 years, could you call out any other major initiatives which are underway, which could accelerate the top line growth momentum for you?
Yes. I think one strategy which we are adopting which I have articulated before is to scale up brands within our portfolio which have been not invested in for a variety of reasons. But we believe that many of them are poised to have a breakthrough kind of growth on the back of large investments. I'd rather do this rather than do -- build new categories of brands, which come at an enormous cost and very high risk of failure. So this is really what you'll see this year and perhaps the next before we start looking at other categories to enter. Because there is enough headroom for growth adopting this strategy at lower cost and lower risk.
All right. And secondly, on Hair Oil categories specifically, you know you have taken some initiatives on introducing low-price packs. Are you going to adopt a more aggressive market share gain strategy there? And also if you could share for last fiscal what was the contribution of Amla and non-Amla in the, overall Hair Oil portfolio?
All right. So Latika, Mohit here. We have committed to the investing behind our other brands, Dabur Amla. So in the past, what we've done is, we've introduced new initiatives, very common [indiscernible], which is Sarso and Brahmi. They continue to do well, but these are not really margin-accretive initiatives to Dabur Amla. But Dabur Amla we will now very aggressively invest behind, both at the trade level and also the media level, and gain back the market share that we had lost to some economy players. So as Brahmi and Sarso will continue to drive the growth at the rural lanes for us. So that will be the strategy for the Hair Oil. And overall, we look at gaining our market shares both in terms of value and volume in the perfumed Hair Oil market segment. We also want to play at the discount level in the Coconut Oil where we continue to gain value market share there.
All right. And then just lastly, on your -- on the margin question, should we expect pricing to move up in any material manner for you going forward?
Well, it's possible. I think there is now inflation pressures now emerging starting from this quarter and perhaps accelerating going forward. Because unless oil prices come down very sharply, the agrarian material prices will trend up because of the industry and other such measures. So we'll have to mitigate that inflationary pressure. So I think price increases, which will not be dramatic, but perhaps to the extent of 3% to 4% may be necessitated during the balance of year to, like I said, mitigate these initiatives, which will also put a little bit of brakes on margin expansion because price increase will be used as a tool to manage inflation. But I think there will be no compression or margin consequence to attrition.
Next question is from the line of Prakash Kapadia from Anived BMS.
So if you could give us some factors in terms of making order for this 21% growth in terms of channel rationalization, is it government scheme, is it low base or GST reduction? What has, obviously, would be a combination of most of these factors? What will be the most critical factor for driving this 21% growth in the domestic business?
I mean, 2 factors stand out; one is our investments in media, 42%. They have yielded great results. We've also rationalized our go-to-market strategy in terms of the media platforms and that obviously seems to be working. And then over the last 1.5 years, which I kept speaking about, the massive buildup rural infrastructure, the separation of Health and Personal Care verticals around the middle, which happened around 1 year, 1.5 years ago, all that is now paying dividends. So as and when the green shoots emerge, and they do seem to be emerging as we speak, that infrastructure will come into play and drive the business growth. And even the media money is very well spent because in an environment of slightly bullish off-tick, definitely media works best. So that's the reason why we have been able to improve shares, and perhaps go ahead of our competitors, particularly in rural India. But I think other initiatives, like, our supply chain management, also played a part. Our fill rates are now improving, especially in modern retail, and our e-comm initiatives are gaining a lot of traction. Now these may be much less in terms of overall impact, but they are important inputs into the overall growth story.
Understood. That is helpful. And on the rural side, you mentioned about the momentum and the outlook being strong because of various government cushion factors, so any specific geographies you would like to highlight in terms of rural? Is it more towards northern part? Is it western? Is it across -- some sense on specific geography?
I'm not sure about geographies. I think as we head into the elections, the government will seek to have a favorable impression on the voters everywhere. But perhaps a little bit more concentration in the north, which has a big built states, including Bihar, for example, and a little bit less in perhaps the southern states. I'm not sure. It's more of a political question. But if the MSP goes up, it benefits everybody. I won't draw a line and say that will benefit only so and so. So I think it will be basically secular. And any stimulus would have a higher element of rural impact than urban. I'm not saying the urban impact would not be there but that's more in terms of -- urban impact is more in terms of the macros, whereas the rural is perhaps more in terms of the stimulus and other such micros. So that's where the difference lies. But to show a robust sale, we cannot just rely on reliable rural. This quarter was an aberration that rural grew around the same as urban, typically, to higher, but that could be a consequence of the mix because beverages, which is almost entirely urban, grew at a strong base. So that might have tilted the favor in favor of urban. Also, [indiscernible] grew very well. E-comm, we categorize under urban, grew very well, et cetera, et cetera. But again, rural has to take the lead. At least, there should be -- if you take the indicators, rural is growing, as far as FMCG is concerned, around 2.5% ahead of -- 3.5% ahead of urban, that's for the FMCG category as a whole. And I think that kind of gap will perhaps remain. So rural is very, very important. Fortunately, we have a great armory of rural-centric products, which we have developed over the last couple of years. And together with the distribution infrastructure buildup, it makes us a very strong player in rural India.
And some of the products on the rural side -- so it will be broader-based kind of growth going forward, also across, say, HPC, Foods? Or there will be certain categories, which we are focusing on, given the some strong momentum we are seeing on the rural side?
Yes. HPC definitely unfolds with a bit of a lag. We're not really focusing at low-price products and fruits through that estate, which are more oriented towards rural, which have very little margin upside. So I think that beverages will remain an urban phenomenon. HPC does draw a reasonable amount of revenues from rural, particularly in the traditional brands like Chyawanprash and Hajmola. These have a very strong rural franchise. But many of our newer products like, say, Honitus, et cetera, or even massage oil, the rural franchise can go up manifold. But again, we have to invest in building the media to fire up these brands.
Next question is from the line of Naveen Trivedi from HDFC Securities.
Sir, your volume growth is certainly higher than market and the competition. So if you can share the what percentage of portfolio gained market share this quarter? And if you can also share the brand-specific market share change -- just for the key brands?
I think Gagan will walk you through some of the numbers. But keep in mind while Gagan will answer this that these numbers operate with a lag. Now that lag could be 2 months, 3 months, but there certainly is. So I do see the numbers which will come through perhaps later in the quarter to be better than what we are today, even though today numbers look better than what we were a year ago. But the market share gains are not, I think, fully reflected in Nielsen, but that does come with a bit of a lag. Yes, Gagan?
Yes. So basically, we're seeing on a math basis a gain continuing in the Toothpaste category. So our value share is now around 12.7%, and volume share is around 15.5%. And the value share is showing a gain of around 50 to 60 basis points. Within that Hair Oil is stable. Like, in volume, yes, there is a gain of about 60 basis points in the Hair Oil category on a volume basis. Value basis it is stable. Shampoo is showing stable shares. The gain is not yet reflected. There is a lag in the Shampoo category, and the fact that we are around 5% in the Shampoo category, not yet reflecting the gains which we have been seeing -- the strong growth which we have been seeing in the last few quarters. So these are the 3 major categories. We're seeing a gain in Chyawanprash category at about 200 basis points on that business. And Honey, as Mr. Duggal has just said, it's not available in Nielsen. So at least, we will be waiting for the household panel data.
I just want to understand one thing, like, if my understanding is right, then the consumer-led promotions are net of from the top line. So do you think that any impact or the benefit from the lower consumer-led promotion also, like, has benefited the -- on volume growth?
On volume growth, there won't be any impact on account of promotion, because it's -- yes, under volume growth, there won't be much impact there, because, I think that the revenue that will reduce is more on the value side that you see in the public results. So on volume, there will not be -- though there are some promotional issues that we're seeing, but that impact is very negligible.
In fact, we have reduced the promotions.
Yes.
So in fact, that shouldn't have any additional impact on volume growth.
So we can say this -- around 21% growth is -- the underlying growth has no change from that number?
Yes.
Yes.
Okay. In your earlier comments, you were talking that the ASP spend and the marketing spend would suddenly increase going ahead, any budget, like, if you can share for the next -- and FY '19? And also if you can share the CapEx plan for the next 2 years?
Let me answer second question first. The CapEx this year is likely to be INR 250 crores, which is considerably lower than what we've done in the last couple of years. Next year, CapEx is -- we haven't really put in the numbers for fiscal '20 at the moment, but it could be a little bit higher on account of a new plant in Egypt, but we haven't really quantified the impact of that. So this year you can take INR 250 crores, might top up at INR 300 crores, but INR 250 crores is probably a reasonably accurate number. And in terms of Adpro, we'll continue to invest much more in media, and we'll try to trim consumer and trade promotions to the extent possible. But the media spends will be excessively growing. Now we grew media by 48% first quarter, which obviously is not a sustainable growth. It will taper down, but I think it should be still in the perhaps the 20s -- maybe even in the high-20s, in terms of Y-o-Y growth of media. Now the outlook is little bit more blurred on consumer and trade promotions, which, of course, the visibility you don't have, but they are integral to our A&P spends. And we try to taper them off as much as we can, but that is more in terms of mitigating competitor activity rather than a strategic tool. So they are more tactical, and it is very hard to predict how much we need.
Next question is from the line of Sukruti Adwant from Baring India.
Sir, has the wholesale channel normalized? And how much would it be contributing to revenues now?
I'll answer your question in 2 parts. The rural wholesale is actually doing very well. We grew -- how much this quarter in rural wholesale?
About 24%.
24%, so that's above the asking rate. Rural -- urban also grew at only 8% and...
7.7%.
Yes, 7.7% to be precise. So the attrition of urban wholesale continues, which started with demonetization, accelerated with GST, and perhaps the final nail in the coffin is now the eBay bill. Because the urban wholesale is to ship across straight line, et cetera, et cetera, which now is harder to do. So urban wholesale, the future doesn't look too bright. But one of the key reasons for building rural infrastructure was that we envisioned this situation to happen, and we took proactive action to mitigate it. So I'm not particularly bothered if urban wholesale continues to further decline -- in fact, it might even be to our advantage -- so long as we build the adequate amount of rural infrastructure.
Okay. And this -- just another question, what would be the next steps for Namaste in U.S.A.?
Well, I think we put a new team in place. And I think the team seems to be now very energized and very focused in terms of rebuilding the chemical franchise and the achievement of chemicals which are more in terms of texturizing, et cetera, et cetera, and not hardcore straightening. So I mean these are subtle changes in our business model. And the third leg of this growth will be to resurrect the whole naturals portfolio. It's small, but it does show signs of having a significant upsize. So a combination of these for North America would take the top line definitely ahead of what we've seen in the past couple of years. But the impact on the bottom line would be even more, because I think we've now pruned the organization to deal with the reality, the situation -- reality of the situation today. First quarter profit growth was enormous, I mean, it was actually a loss last year and a considerable amount of profit this year, and that trend will continue. So I think the challenge in North America would be, "How strongly can we rebuild the top line? Can we grow at 5% to 10% this year?" I think it's imminently possible, but not to be taken as a given. The upside really come from sub-Southern Africa, which is actually showing pretty good scale, upsides and growth. We grew around 20%, 25% this quarter. And I think we can accelerate this growth, because that market offers enormous opportunities. So I think, on balance, the Namaste issue seem to now be behind us, and it will be a significant contributor to international growth.
Next question is from the line of Tejash Shah from Spark Capital.
Just picking up from your commentary today, there seems to be a strong premiumization trend in the toothpaste category. So just wanted to know if you have anything...
Tejash, I would question that. Why have the urban players slashed the prices if there's such a big wave of premiumization? Why have -- but there are hugely value-added products, like the sensitive range, that have not done well? So this mantra of premiumization I would question. I think premiumization is happening but on a far more modest scale than what people think.
Okay. No, but you mentioned that value segment has done better than discount segment, so that's why I just wanted to know why [indiscernible]
That's true, yes, but I won't call it premiumization, yes. What you're saying is right, I'm not disputing that, that the discount segment has been offering much less value because even the premium brands are available at discounted prices. So you have a INR 10 Colgate, INR 10 Red Toothpaste, a INR 10 Closeup, et cetera, et cetera. Now they may be lower in terms of damage. But in terms of value perception, they are great. So that's one of the problems afflicting the discount segment. But I won't call it premiumization. Premiumization happens when people move up the whole value chain into the very higher-priced products which offer very specific niche benefits. And that doesn't seem to be happening.
Okay. So what would you call out this trend? Is the competitive intensity...
That is -- it's massification of the mid-range products. I think that is really the big driver of growth that everybody now seems to realize that there is a product code at the bottom of the pyramid. The margin realizations are -- may not be enormous, but they are adequate to manage the portfolio. And the LUPs are driving a lot of that growth. Now what we believe is, as and when affluence comes in and the disposable incomes rise -- and you've seen that in category after category -- people move up from the cheaper INR 10 SKU into the bigger SKUs. And that's something which -- now again, I won't call it premiumization because they'll stick to the same brand, but it will mean better value, better realization in terms of margins for the key players here. So that is what the -- perhaps the medium-term trend will be. The medium trend is really massification of the mid-priced products.
Okay. And sir, and then last one, yes. Because of GST and, before that, because of demon, a lot of churn in wholesale channel has happened. So what proportion of original channels trend would be back in the business? And what will be lost for good, won't be coming back in the streams? So I just wanted to get some sense.
Yes, I mentioned that in the earlier question that urban wholesale is perhaps -- I wouldn't say it's going to be eliminated. It's still around 20% of business. It's at 22% of business, which is a lot. But this slice will continue to come down if one were to just extrapolate current trends. Urban wholesale -- rural wholesale will grow. Modern trade will grow. E-com will grow actually at the highest pace and a pace which might surprise us. So these are the big variables here. And ultimately, e-com might even take a slice out of modern trade.
Okay, sir, that's slightly counterintuitive because we always thought that urban wholesale was actually ready for GST, and hence, they will be better at -- the adaptability will be faster relative to rural wholesale. So -- and in fact, you started calling on this trend 2 years back that urban wholesale is losing market share to urban -- to modern trade because of value migration happening there. So this trend might not have anything to do with GST, or am I missing something?
No. Basically, what was urban wholesale? It was a feeder into rural, like our super-stockist network, which we call the rural wholesale network. So both of these are feeding into rural. And now it's -- one is feeding much less because of the compliance issues, whereas the compliance issues in rural wholesale are much less because the scrutiny is much less. If you go to any wholesale [ mandi ] in any of the bigger cities, you will find an immense level of scrutiny in terms of the transaction than a -- and a much less ability to, let's say, not comply with the rules, which makes this channel much less profitable than it was. So this is something which was pretty evident if you understand the way urban wholesale works. The compliance issues are going to impact it far more than rural where the scrutiny, like I said, is almost not there.
Next question is from the line of Amit Sachdeva from HSBC.
Congratulations on a very good set of volume growth. So my question, Sunil, is that when we look at this, such a strong number. And if I were to dissect it, how Dabur has changed over last 1.5 years post the [ Pandey ] thing you had started, I think the biggest change has been your approach to sort of responding to price, and tailoring your value proposition across products has sort of changed. And Honey has started doing well, or even Chyawanprash has started doing well. Much of it, would you attribute this to the kind of pricing action and the promotion action you have taken, and that's the large part of the puzzle? Or distribution expansion has played a larger role in this sort of sustained performance or even the standout performance now? Or is it something, as that has started what -- the brands were strong; and now with new value, you're seeing more price elasticity there? How do we dissect this? And how do we read into your competitive response? Especially in the context that when Amla was not responding, you lost market share, but now it seems like you want to be there as well. So has that approach now being more price warrior yourself and trying to sort of gain maximized volume growth and not really lose anything to the competition purely on pricing? How do you dissect this 21% in ways like distribution, your pricing action, natural trends, which are now getting a tailwind? How do -- how should we read into the structure -- structural versus cyclical response from your side?
Well, I think there has been some attitude change in part of management in terms of how we respond to the [indiscernible] competition compared to the past. In the past, perhaps even a little bit more concerned about defending profit, now we are completely committed to dep=fending share, and I think that's where the big difference lies. And also, our response time to the [indiscernible] competition has been now accelerated to the maximum possible extent. There still is -- have some lags because packaging changes take time to -- and take time to get on the ground, like we did in Honey and recently with beverages. But that's a quarter or 2, so it doesn't damage the brand beyond a very limited extent. So I think the second thing what we do is we don't dumb down our product to lower the prices. And even if it is a huge amount of pain, like it was in Honey, where we kept the whole -- the product value the same but offered better value in terms of lower price, that's something which was -- it really worked in our favor. I think the pressure on us, for example, in Honey to move from glass to PET, which would have saved us around 10% in margins, was enormous at that point in time. The smartest thing to do was not to change that because, ultimately, the glass pack is really the gold standard in terms of packaging. People are willing to pay a premium for it. And they respect the brands which do not weaken the whole value proposition. So that's another learning. So in Amla, we think we could have tinkered around with the whole composition, but we haven't. We registered every change to put more LLB, et cetera, et cetera. And in Amla, we have done flanking strategy. We flanked it with aggressive price warriors so as to protect the flagship. So different strategies for different situations, but definitely our response time and aggression to this situation has been -- is much more than before.
That's great to hear, Sunil. Just one small thing, again, on the tailwind [Audio Gap]what seems to be working for Oral Care and other categories, which naturals consumer preference has changed. But seems like, so far, you have not -- you just -- we've gathered those tailwinds from the existing portfolio, but not much aggression was shown in sort of exploring some large new categories or at least where the market sizes have become something -- with some significance in some product categories. What would be your 3 big ideas for the next 6 to 12 months purely exploiting these natural trends?
The last couple of years have been pretty tough, so the whole attitude of the company was to defend, and rightly so because we were under attack from multiple fronts. Now with those headwinds significantly behind us, we are getting back into aggression more in terms of new products and, yes, like I said earlier, in the shorter runs, scaling up -- rapid scale-up of some of the existing products on the back of heavy investments and advertising, in particular, advertising and promotions. So you will see more aggression. And that's reflected in this massive increase in the media expenditure. And so the situation now is more facilitative of getting into aggressive -- aggression mode rather than just being on defense.
Sure. But Sunil, what would be those set of -- if not specific products, but what would be those categories that excite you and in that space? And how we should think about Dabur sort of exploiting which categories and how large they are? What sort of opportunities do you see in those categories? Not asking for the very specific product launches but some color of how you're seeing where Dabur is strong at, where you'll monetize this opportunity better than competition or maybe others.
Obviously, we got a massive equity embedded in our brands in terms of herbal and natural products. So that will obviously be the point of scaleup and high investments. But after that, which categories we go to, I'd defer not to answer the question now, but we do have strong plans in consumer health case in general and also other categories, including beverages, to do some very aggressive investment in select product categories.
Next question is from the line of Vicky Punjabi from JM Financial.
This is Richard Liu. Would it be possible for you to share how does this 21% volume growth split up between juice and balance part of the portfolio? I'm just trying to get a sense of how important is juice is in the volume scheme of things.
Well, it's important, but it's not dominant. I think juice volumes are up 26%?
[ Yes, 26% ].
It makes the non-juice part there maybe in the 18%. But that's the ebbs and flows, so it's not that -- and this is structural. Bottled juice can be lowered in the teens, and the other one can be higher. So I won't put a big emphasis on that, the impact of juices on volume. It is there. But also keep in mind that first quarter, it's a big quarter -- it's a comparatively large quarter for juices. Second quarter, you will find juice [indiscernible] shrinking considerably. First quarter, it was something like 22% of domestic business. It will probably be 15% in the second and then be a little bit higher than that in the third and lower that -- and also higher in the fourth. So these are fairly ambitious that happen because there is a seasonality element in juices, and that does impact the volume growth up and down.
Okay. And Mr. Duggal, I know that you usually talk about juice having become a very, very large category, and this is a segment that can no longer grow at the 20s, like how it used to consistently quarter-after-quarter 2 or more years back. Has anything changed on that in terms of the pacing of growth that you expect from this?
I think the future of juices has probably never looked better as today than -- I mean, it is looking better today than it has been in the last 2 years. And all the big change is this whole scrutiny on sugar. And any beverage with a high level of sugar content, which is largely the fruit drink space, is going to come under a massive amount of pressure on the part of the regulators to authenticate the sugar content and give it some kind of traffic signal visibility. And the higher order beverages, particularly 100% range, are much less vulnerable to that. We also have some vulnerability in parts of our portfolio, but there is this massive fruit drinks market, which is thousands of crores in size, which perhaps offers the opportunity to pick consumers from. And I think, therefore, the juice outlook is very good, especially the higher-end juices. So I would put a lot of bets on my active range, which has no added sugar, because people will move up the ladder into low-sugar, high-pulp-content juices. And again, we are the leaders in that segment but as we are really not present in the cheaper drinks segment, which has high sugar.
Sure. That's very useful. And lastly, can you help me get some perspective on how Namaste's margin would have moved up in the last few years? I wanted to get a sense of how -- what the deceleration has been and what has been the acceleration and what you expect going forward.
The acceleration has happened really just now. Once the -- and there are some momentum in the third and fourth quarters, but last year, in the first quarter, we actually lost funding in Namaste.
So the operating margin and EBITDA margin has moved up to around 20% this quarter, so it's been a very good quarter.
Yes, 13% of EBITDA margin, which is not bad at all considering that we lost fundings, and we had a -- probably a negative EBITDA into this quarter.
[indiscernible]
And how was this figure looking for the whole of FY '17 and '18?
'17, what was EBITDA?
What...
'18, '19.
Last year?
No, in terms of '17.
Last, last year.
So '17, '18. '17, '18 is what?
I think there's some loss in the business.
Yes, it was [indiscernible]
Up in 0?
0, yes.
Yes. And now it's 12 in the beginning of the year. No reason why it can't accelerate further. But even where we are today, it's a sharp turnaround from what we were in the last couple of years.
Sure. And this, you are talking about the U.S. and sub-Saharan Africa together?
It's the Namaste legal entity, which includes the sub-Saharan component. And as it does now, yes, they are higher than sub-Saharan, but that is in virtue that the sub-Saharan growth is higher than North American. So that's been that profile. In terms of mix, we'll see [indiscernible][Audio Gap][indiscernible] et cetera. But overall, the localization agenda which we've had for Namaste in terms of now manufacturing in 3 African centers, [ Karoo ], [ Libya ], [ Sasolburg ]. It's very instrumental in now moving up the profitability. So the next 80% of African sales come from local manufacturing. And this will probably become 90% or 95%. And this is biggest -- this is prime driver. But in addition to that, I think, the North American team -- and like I said, we have a duty in there, is making very impressive moves in terms of cost management.
[indiscernible]
So even though I don't have the North American numbers, but while it will be lower than overall legal entity, it will still be sharply ahead of what it was last year.
Sure. And what's the split between North America and sub-Saharan Africa now in terms of revenue?
Around 62-38 or 65-35 exactly.
64-35.
64-35, yes.
So 64% is North America?
North America. And 35% of the -- is the non-U.S.
And how was this -- how much was this 2 years back?
It was around 25-70.
[indiscernible]
[indiscernible] 30.
[indiscernible] [ 30-70, more or less ].
So it's not moved very sharply, but the trend lines indicate the movement of sub-Saharan. Having said that, I would be equally happy to see the North American franchise grow. It's not that we are concertedly moving towards sub-Saharan. And the Africa franchise is where the incubation of the brands happen and that the brand equity are established. So that's also very important to us.
Next question is from the line of Sanjay Bembalkar from Canara Robeco.
Sir, do you wish to call out for any change in inventory level at wholesale levels or any possible prebind due to a level which you may have noticed? And secondly, are you noticing any significant change in the retail level volume growth?
Yes. So I think what happened is demonetization and GST, the [ FTRs ] have drastically brought the retail level or inventory to the stockist level. Post GST, what has happened is this has gone back to a new normal. And this new normal is significantly lower than what it used to exist both at the retail level as also at the stockist level. So at the stockist level, we have not -- we are continuing to be at this corrected pipeline since [indiscernible] investing in the guidance happened to us. Today, we should be keeping at around 16, 17 -- 16 to 17 days of inventory at the stockist level. And [ FTRs ] at the retail level have gone back to a new normal as we speak, which is lower than what it used to be earlier during the pre-GST era.
Right.
And sir, any change...
Sorry, can we stop the Q&A for a second?
Okay, yes, he's got it.
Please continue.
Yes sir. And any change on the volume growth at the consumer level or retail level, if you have any sense?
The volume growth at the consumer level is very robust. As you know, the volume has grown by around 21% [indiscernible] across all our categories, so that remains robust. Going forward, in terms of outlook, like Mr. Duggal mentioned, we can't put a figure to it, but we're looking at low double-digit stock and volume growth going forward in the future.Next question is from the line of Nillai Shah from Morgan Stanley.
So my first question is just, again, going back to the Domestic business. You did highlight last quarter that you were looking at market share gains, and that was irrespective of what happened to category growth. You've delivered that in the first quarter itself. So if I can just go back and just trying to pick your brain as to what were you seeing at that point in time to have given you this confidence of being able to pivot the business model to achieve this?
Well, we're pretty optimistic in terms of the initiatives which we have taken in terms of the distribution infrastructure, in particular, along with the commitment of the team to put money behind media. So that outcome definitely was -- would have been favorable. I think it was a little bit better than what we were expected because there were -- perhaps there were some category tailwinds which are not reflected in the new set of numbers, but they seem to be evident. So -- and the team today is very energized, very charged. I think the morale is very good after -- we've come out of a pretty long 2-year type of drought. And we've come out stronger as a consequence. So they are all connected to the team, both sales and marketing, AB supported by supply chain and others to deliver this performance. And I think this performance is sustainable.
Has there been any change from the top management communication down to the lines to the brand managers, et cetera, that you can kind of share with us?
All we did was that we said that, don't worry, this is temporary. This is not something which is going to remain. We are on the verge of getting stronger. Especially, disruptive competition perhaps will be a long-term opportunity for us, and a great opportunity because it will enable us -- enable a larger slice of the pie for herbal and natural products, of which we're the natural owners. And therefore, all these disruptions ultimately will work for us. So we also, at the cost of -- and then we really were not able to support major infrastructure build up in rural. We did that a year ago on the faith that this would ultimately have a very positive outcome. So I think we get the momentum going, then they're disheartened. And I think, today, we have emerged very strong from that challenge.
Moving forward, you spoke about the fact that there are some brands, some categories within your portfolio, which are very small at this point in time but have the potential of becoming very large products within your portfolio. You've spoken about that in the past, you've had a few instances where you've moved ahead on this agenda -- Baby Care, your Juices with milk contained, et cetera. But you've pulled back in the past -- for obvious reasons in the past, but what is your view on some of those opportunities as you move forward? When you speak about new categories, are they more of the same, Yoodley, et cetera, et cetera? Or is it more of a completely revamped that you're thinking about?
It's neither. It's very looking inward at our current portfolio and seeing how much scalability does it have. Suppose we have a cough cold fever brand, which is around INR 50 crores, obviously, in the INR 2,000 crores category has got some unique benefits attached to it. Can we invest strongly behind it, scale it up to INR 200 crores? I think those are the answers which we are seeking. And that is really the opportunity which we're going to build, at least, in the next year or so. So then we -- after that, we'll look at adjacencies like these value-added products, which you spoke about. I think there hasn't been -- this whole sugar issue comes up with the value in terms of milk additives, et cetera, would emerge. But immediately, I think, there's so much value which is lying unlocked within our current portfolio, it will be pretty silly not to pick that as a priority.
And last question is on your inventory management. Are you moving to a replenishment cycle like most of the other consumer companies have? Or will that still take time to be completely automated?
Yes. Still ambivalent about a pure replenishment model. The current litchi initiatives -- it's a huge one, which we are putting into play, which is end of the first quarter of next year, is really on improving the service level to the highest possible standards. If it happens within the replenishment model or without, that's not something which we're overly concerned about. And I think there has been some danger in our replenishment model, which demands extremely low level of inventories at the distributor level. What happens when you have a transporter strike like we had, 1 week of complete disruption in terms of transport and you have a 1-day pipeline with the distributor? Well, you have no recourse, I mean, no sales. If you have a 17- or 15-day pipeline, which is, I think, the right one for us at this point in time, you really don't lose much in terms of sales. There will be still some SKUs which will be out of stock, but majority will not be. So I think in a country like India, with so many disruptions -- floods, strikes, et cetera, et cetera -- trying to behave like you were in Germany sometimes doesn't work. So we have to adopt local solutions, at the same time, not compromise on efficiency, but not necessarily follow things like replenishment model. Because that replenishment model, the way I understand it, necessitates very, very low inventory levels at all possible supply chains.
Next question is from the line of Amit Sinha from Macquarie.
My first question is on your India business gross margin, that has improved significantly. One reason which you mentioned was the Food business has done well because of the benign input cost. But what would be the other reason because you keep on highlighting pressure on the input side on the rest of the business. So is it a better product mix which is helping you to get this margin expansion on the gross margin side?
The expansion has been modest, it's been around 1%. So it's not been game changing. It's really been done because we bought ahead of the whole consumption cycle. We were basically consuming low price raw materials, which we had bought in the third -- sorry, in the fourth quarter. And now, this will probably peter out. It was fortunate we did that because under the under the anti-profiteering et cetera, provision it was practically impossible to increase the prices even if there was an opportunity to do so. But now with inflationary pressures coming up, we would use pricing at least, to moderate those price increases to mitigate the inflationary pressures and keep the margin profile perhaps where it is today. It may not be possible, but at least -- could definitely give it a shot. In any case, I still think there is enough operating leverage in the P&L to facilitate good operating margin expansion. Of course, there will be some pressures in terms of nonoperating income, because we paid out a huge amount in terms of dividends. So there will be some slippage there, but if you just take the operating margin, I think it should remain -- we should be able to -- that's really how things will work out. And then, of course, we need to replenish our cash reserves over the next year or so -- a couple of years to where they were at before we made this higher dividend. And then the nonoperating income should catch up.
Sure. But you have talked about maintaining the gross margin levels compared to the last year levels, but there is a possibility of this expansion sustaining if you take adequate price hikes, right?
But in an inflationary environment, it's unlikely that gross margin will expand. I'm not saying it's not possible, but it's unlikely. So we're not looking at gross margin expansion, at least, on a Y-o-Y basis over the next 3 quarters. Because inflation is almost a certainty which is going to happen, I think, we're looking at around how much 5% or...
[indiscernible]
Sorry, 3.5%, it could go up. It could accelerate as and when the variant price hikes happen on the back of stimulus and industry, et cetera, et cetera. And then, of course, oil is the big issue, which is so unpredictable.
Sure. Sir, secondly, I wanted your commentary on the shampoo business, which has been doing significantly well in the last 3 quarters. So what is working for us? Of course, you've made some initial commentary, but can you please give some more color there?
Well, the shampoo growth in the recent past has been driven by our rural infrastructure buildup. Going forward, we are trying to now premiumize the whole shampoo portfolio by introducing, let's say, relaunching it in a significant manner to get it to the urban audience. Because ultimately, we can't keep depending upon the rural part for growth. And I think we are pretty confident of our ability to resurrect this brand on the back of it's -- or urbanize the franchise for the urban audience where it has been underperforming over the years. So that is a big challenge. And we're pretty sure that we'll be able to be on top of the thing. And the brand should show some resurrection -- substantial resurrection, I would say, in urban India, over the next couple of quarters, perhaps maybe in the second half of the year. And the rural franchise should keep growing because I think it offers such great value on our distribution -- it's really a higher distributed brand. So it's got more distribution, more [indiscernible] distribution than brands which are 5x its size in our portfolio.
Right. Sir, is it possible to share what percentage of Hair Care would be shampoo now -- very broadly?
It's around 3 point...
15%?
15% of total Hair Care.
So it's got a maximum amount of upsize in terms of scalability. Because it's just a 5% market share, but with a unique property. It's now only the pure herbal brand -- yes, there are a couple of other brands which have sort of fallen by the wayside. So we are pretty dominant in this space. We think we have thought well. We can build this brand into a very large franchise.
Next question is from the line of [ Gaurav Giovanni] from ICICI Securities.
Sir, you've outlined that the rural growth is looking -- the rural growth outlook is looking a bit better. However, sir, considering the monsoon in the Uttar Pradesh area, the Bihar and mostly the central part of India, it hasn't been that great. So any risk to that? I mean, the benign monsoon in those areas?
[ UP ] the monsoon has been a little weak. But fortunately, not probably will be a negative. And the water table, the reservoir levels are still pretty good. So it doesn't seem to be a big issue as of now. In turn -- the monsoon has turned out to be better than what we expected to, let's say, a month ago. July rainfalls have been generally good, and even if they haven't been all that well distributed, irrigation has taken up the slack. So we think a good amount of growth in terms of the acreage planted, and with the MSP increase, it should be a jackpot for the farmers, because of high output and high selling cost -- selling price is actually a great scenario. Of course, there's the fuel inflation, but that's something we should [indiscernible].
Next question is from the line of Harit Kapoor from IDFC Securities.
Most of my questions answered. Just one thing, you spoke about a future outlook on price increases. I just wanted to know in this quarter, the increase in realizations or value minus volume, would that be more led by mix or lower promotions, because I don't think there are any major price increases, right?
Not in the immediate 2 terms. So the volume value would -- there would be -- I mean, it could start now with the gap, which are growing.
1.5.
[indiscernible] was how much, 1%?
[indiscernible]
1%. Now I don't expect it to shrink further. I think this gap will grow now because the price increases will kick in, and typically the volume -- the value could be at least 2% to 3% higher than volume, at least, sometimes much more than that. Now this will happen gradually. Because I don't see any major specific price increases happening. There is no reason to justify those kind of increases. So by the year-end and exit, we may still have a 3%, 4% gap between volume and value. But again, not very sure about that.
Next question is from the line of Sangeeta Purushottam from Cogito Advisors.
My question actually related to the point you mentioned about your CapEx estimates of this year. Could you give some kind of details on where this CapEx is going to be spent? And I also wanted to understand your overall approach to CapEx, and basically capital allocation. Because this is in general a fairly low CapEx intensive industry. And if you compare Dabur to the other FMCG players, your ROEs are a little lower than that of for many other players because the capital intensity is higher. So are you actually looking to change that in any way? Or look at more supply models in your expansion program?
Well, I think as far as our CapEx, this year is conservative primarily with regards to expansion but we are doing in [indiscernible], we are doing in [indiscernible] so therefore, there will be those capital expansion that we are going to spend this year as far as [indiscernible] is concerned and international also. We are going to have in Nepal and a part in Egypt and other countries. So -- therefore, if we look at it overall, the CapEx is going to be in the range of INR 250 crores to INR 300 crores this year. And if we look at in the past it was higher because we had made a greenfield capital expansion also in [indiscernible] and also in [indiscernible] and other areas for the capital expansion. So whenever there is a requirement for capacity expansion, we are always going ahead with capital expansion on that. Having said that, there is also a distinction between the categories where we need heavy capital expansion -- for the food category, the capital requirement is quite -- comparatively higher than other categories that we have in PPD. So it depends with regard to the category in which we are proposing for expansion.
Okay. So in Food, for example, is it possible for you to outsource part of the production, which is what many -- as many of the other FMCG categories companies do? Or are there any benefits to having it in-house?
No, they're benefits in both. We prefer in-house because it offers better margin profile. And IRRs are very compelling rather than outsourcing it. So outsourcing is more a bridge in say, the summer, the season period to meet the efficiency in production rather than being a strategic element. But going forward, there could be categories in which the outsourcing model would work better than putting in our own capital. At this point in time, putting in own capital, which we did, let's say, to a considerable extent -- but maybe for beverages it was the optimal thing to do. Sometimes, we may choose otherwise, and there are positives to outsourcing also.
Right. So do you actually have any kind of an ROE targets that you look at when you -- or an IRR target because what I -- I was just trying to understand why your ROEs are so much lower than those of other players?
Well, our ROEs, if you net the cash off [indiscernible] extremely high?
[indiscernible]
Is actually quite high. Our IRR, excess of 19% actually normally take into account.
IRR.
On the CapEx.
On the CapEx. So therefore, that's the baseline that we take before we take any decision --
What about ROE now, net of cash?
Net of cash -- [indiscernible]
[indiscernible]
You don't really follow what best practices are here. But we have to see our own operating model, sometimes demands -- for example, our plant in [indiscernible] did a INR 500 crores plant. Why put it up in that place, but the IRR was [indiscernible].
Right. So that's what I'm trying to get at. What are the advantages -- obviously, you would have evaluated both, and if you've chosen a particular part, just wanted to get an understanding of what advantages you see in that? And I missed an ROE number you gave excluding cash? Could you repeat that, please?
It's around 48 --
48 percent.
What you need to do is you need take out the cash results from the balance sheet, and then look at the ROE [indiscernible].
Okay. And how much would -- other cash -- is the cash balance as on June end?
Net cash.
Net cash more than INR 3,000 crores.
INR 4,500 crores.
That is gross cash, and there is some debt. Net cash is around INR 3,000 crores.
We'll be paying out INR 1,300 crores. So you'll probably see a bit improvement in ROE. So --
Okay. All right. If you could just explain a little bit to me that -- what advantages that you got of -- or you get of actually having the manufacturing in-house? Is there better control because it is the Food sector? Or just wanted to get an insight into that.
Well, I think apart from the cost synergies, there are also 1 element of fiscal incentive, so -- wherever we had the window open, we have taken the advantage of that by capitalizing in those areas to get the fiscal advantage, so that is also one of the important criteria of taking it. And second is also with regard to the synergies and the confidentiality that we maintain when we manufacture in-house. So therefore, that becomes important for us to do. And it does this also with regard to third-party margins. If you do it in-house, our margins are competitively better than what we do if we outsource. So these are the factors which are relevant in deciding whether it should be in-house or third-party. And third-party we do take wherever there is a short-term capacity shortage and we want to take the take advantage of the demand, we certainly take third parties also.
Right. Okay. So this INR 250 crores to INR 300 crores that you're planning to spend, how much would it be in the Food business and how much would be in the non-Food business?
Food will be comparatively modest. I think INR 50 crores.
I think, INR 50 crores. [indiscernible]
And -- Food is very cyclical. We put a new [indiscernible] line, which cost INR 50 crores to INR 60 crores. And then 2 years later, you have to put another line, so -- last year we put in -- a fair amount of CapEx in juice. This year not, but maybe next year again we'll have to.
As there are no further questions, I now hand the conference over to Ms. Ahluwalia for the closing comments. Over to you ma'am.
Thank you. Thank you, everyone, for your participation in the conference call. A webcast of this call and transcript will be available on our website, and we'll be happy to address any further questions that you may have. Thank you, and have a nice day ahead.
Thank you very much, members of management. Ladies and gentlemen, on behalf of Dabur India Limited, that concludes today's conference call. Thank you for joining us. And you may now disconnect your lines.