Dabur India Ltd

NSE:DABUR

Earnings Call Analysis

Dabur India Reports Robust Q3 Growth

Dabur India's quarterly earnings reveal a strong performance with consolidated revenue growing by 9.6% in constant currency and 6% in volume within the Indian FMCG business. International operations also shone, with an 11.7% rise. Various product categories enjoyed growth, led by Oral Care's 8% rise, driven by a volume growth of 5%. The company's active expansion initiatives are on track, as they aim to reach a distribution network of 1.5 million outlets. Additionally, an approved capital expenditure aims to bolster presence and growth in South India. Profits also look healthy, with a 9.5% increase in operating profit and 8% in PAT, which jumps to 15% on a like-for-like basis, evidencing a solid quarter for Dabur India.

Dabur's Performance Reflects Steady Growth Amidst Sector Challenges

Navigating through a period where the FMCG sector faced year-on-year volume growth offset by certain liquidity issues and delayed winter season impacts, Dabur exhibited a robust increase in consolidated revenue. The revenue spike of 9.6% in constant currency terms and 7% in INR, totaling INR 3,255 crores, was underpinned by a 6% volume growth within India's FMCG business, inclusive of the Badshah brand's contribution. Moreover, the international business thrived with an 11.7% growth. This financial upswing was reflected in the profitability of the company, with the consolidated Profit After Tax (PAT) escalating by a significant 15%.

Category Specific Growth Highlights Dabur's Diverse Strength

Dabur's Health & Personal Care (HPC) collective grew by 7%, led by Oral Care's 8% climb due to a 5% volumetric expansion. The company's strategical focus on the Herbal segment paid off, as it surpassed non-Herbal by 200 basis points, reaching 31% of the oral care market. Particularly impressive was the double-digit growth of Odomos, enhancing the market share in the Mosquito Repellent Creams (MRC) category to a commanding 65.2%. On another positive note, despite slower growth in the Health Care portfolio at 3%, the success of brands such as Chyawanprash and Dabur Honey consolidated Dabur's market leadership with share gains of 151 basis points and 33 basis points respectively within the quarter. In the Food & Beverage segment, the beverage business and the recently acquired Badshah business exhibited growth figures of around 7% and 33% respectively, positioning Dabur well towards its goal of a INR 500 crores run rate from its Foods portfolio.

Expanding Distribution and Efficient Operations Foster Growth

Dabur's commitment to growth is also evident in its relentless pursuit of distribution expansion. With direct reach extending to 1.42 million outlets and set to hit 1.5 million by the fiscal year's end, coupled with robust village coverage and the support from over 18,700 'Yoddhas' or frontline sales representatives, the company is expanding its reach aggressively. Additionally, Dabur's operational efficiency, as reflected in the improved Edge score, a measure of distribution efficacy, by 15% further underscores its operational excellence. Complementing this is the strategic capital expenditure of INR 135 crores slated for a new greenfield plant, which will bolster capacity for key products like Red Toothpaste, Odonil, and Honey, particularly enhancing Dabur's presence in the vital South India region.

International Business Flourishes with Regional Successes

On the international front, Dabur's footprint expanded with the international business achieving an 11.7% growth in constant currency terms. This impressive performance is attributed to substantial regional growth: MENA at 14.3%, Egypt at 43%, and Turkey at an astounding 43.8%. Dabur's effective innovation and consumer-focused strategies are delivering results, allowing the company to secure additional market shares across various categories and geographies.

Margin Expansion and Operating Profit Growth Ahead of Costs

A strong quarter for Dabur's gross margin saw a healthy expansion of 310 basis points, attributed to material deflation. In alignment with its strategic objectives, Dabur substantially increased its Advertising & Promotion (A&P) investments by approximately 36% during the quarter, a move deemed crucial for driving long-term sustainable growth and market leadership. The consolidated operating profit reflected this dynamic approach with a growth of 9.5%, and even when removing exceptional legal expenses, operating profit was up by 13% with a 120 basis points expansion in operating margin. The company's Profit After Tax (PAT) grew by 8%, and when adjusted accordingly, demonstrated a strong 15% growth.

Market Share Gains in Key Categories; Herbal Segment Promising Growth

Market share advances were made in strategic product domains, with the Herbal segment outpacing others with a considerable edge. Oral care, a leading category, observed market share leaps with Dabur's Herbal portfolio deserving special mention for its higher growth rate compared to the normal category, tallying around 30%, which promises potential for future growth.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Q3 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, Ms. Ahluwalia.

[Gagan Ahluwalia, executive]

Thank you. Good afternoon, ladies and gentlemen. On behalf of the management of Dabur India Limited, I welcome you to this earnings conference call pertaining to results for the quarter ended December 31, 2023.

Present here with me are, Mr. Mohit Malhotra, Chief Executive Officer, Dabur India Limited; Mr. Ankush Jain, Chief Financial Officer; Mr. Ashok Jain, EVP, Finance and Company Secretary; and Mr. N. Krishnan, DGM, Finance.

At the outset, we will have an overview of the company's performance by Mr. Mohit Malhotra, and that will be followed by a Q&A session.

I now hand over to Mohit.

[Mohit Malhotra, executive]

Thank you, Gagan. Good afternoon, ladies and gentlemen. Thank you for joining us today for the results call of quarter 3 financial year '24.

FMCG sector continued to witness year-on-year improvement in volume growth, although there were pockets of stress due to liquidity issues and delayed winters. Impact of pricing decelerated, as price increases started to come into the base and growth was largely led by volumes.

Dabur's consolidated revenue grew by 9.6% in constant currency terms and 7% in INR terms to reach to INR 3,255 crores. This was backed by 6% volume growth in India FMCG business, including Badshah's. International business grew by 11.7% in constant currency terms.

Talking about the categories, HPC portfolio recorded a 7% growth during the quarter. Oral Care portfolio grew by 8%, led by volume growth of 5%. Herbal segment and Toothpaste category outpaced the non-Herbal segment by almost 200 bps, now reaching 31%. The Home Care category grew by around 7%, which was led by double-digit growth in Odomos with a gain of 1,067 bps in MRC category, taking our market share up to 65.2%. Odomos brand continue to outperform the category with an increase in market share of 180 bps.

Hair Care recorded a mid-single-digit growth, while market share in hair oil improved by 140 bps, to reach 17.1%. The Health Care portfolio recorded a 3% growth for the full year CAGR YTD of 8.3%. We gained market share across the health supplement portfolio with Chyawanprash gaining 151 bps and Dabur Honey recording a 33 bps improvement during the quarter.

The Digestives category saw a 15% growth on back of strong performance of Hajmola franchise. Within OTC portfolio, Lal Tail's, Health Juices and Shilajit performed very well, while Honitus had a muted performance in the quarter due to delayed winters. Our Therapeutic portfolio is performing well and is on track.

In F&B portfolio, beverage business saw a growth around 7% during the quarter. The newly acquired Badshah business saw a growth of 33%, driven by focused marketing efforts and rejuvenated brand portfolio. We remain committed to exiting the year with a run rate of INR 500 crores from our Foods portfolio, including Badshah.

We continue to drive our distribution expansion initiatives. Our direct reach stands at 1.42 million outlets and should increase to 1.5 million outlets by the end of the fiscal year. Village coverage is at strong 1.17 lakh villages, being ably supported by more than 18,700 Yoddhas across the country.

The Edge score, which is the marker of the efficiency of the distribution, continues to see improvement and has been further improved by around 15% in the quarter. I am pleased to inform you that the Board of Directors have approved capital expenditure of INR 135 crores for setting up a greenfield plant in South India for capacity expansion of Red Toothpaste, Odonil and Honey. This will enable us to enhance our presence in South and add to our growth in this region.

Now coming to our international business, with moderation and inflation and distribution changes, the international business registered a CC growth of 11.7% during the quarter. This was driven by MENA region growing at 14.3%, Egypt business growing at 43% and Turkey business growing at 43.8%. Our focus on innovation and consumer-centric strategies has enabled us to gain market shares across categories and countries.

Coming to the consolidated profit during the quarter, our gross margin saw an healthy expansion of 310 bps, as we saw material deflation during the quarter. In line with our stated strategy, we have increased our A&P investments by around 36% in the quarter. We believe these media investments are essential to drive long-term sustainable growth and maintain our market leadership.

The consolidated operating profit recorded a growth of 9.5%, with 50 bps improvement in operating margins and PAT grew by 8%. Excluding the exceptional legal costs, our operating profit grew by 13%, with 120 bps expansion in operating margin. On a like-for-like basis, our consolidated PAT increased by 15%.

Overall, while the demand scenario is still challenging, we are cautiously optimistic about the future. We will continue to drive profitable growth across our business verticals, backed by investments in our distribution network, brands, manufacturing, digital and organizational capabilities.

With this, I will conclude my address and open the floor for the Q&A. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Mihir Shah from Nomura.

[Mihir Shah, analyst]

Congrats on a good set of numbers. So firstly, on the Hair Oil and Oral Care portfolio. In Hair Oil, Dabur's performance seems to be better, while in Oral Care, the value growth now is in line with the market leader.

Can you share what is working for us in the Hair Oil portfolio? And can this outperformance continue? While in Oral, what steps can be taken to get growth back to a higher trajectory? Is pricing growth can be under consideration? So that's my first question.

[Mohit Malhotra, executive]

Right. So thank you, Mihir, for asking. So in Hair Oil, we have a strong performance in the Hair Oil, so we've gained market share around 140 bps. And this is a secular growth in all the subsegments of Hair Oil, where you will see coconut oil, perfumed oil, cooling oil across the board to be gained market shares. We had a substantial improvement in our market performance.

So if you look at Amla portfolio, where perfumed hair oil has also grown and gained market share. Sarson Amla has also done well. Coconut oils have also registered a 50 bps gain in the market share for us.

So overall, while the primary sales was at 4.5, but our secondary business has actually improved further on. And we think the trajectory will continue. At the end of the day, we are only around 16%, 17% market share. We have a huge headroom of roughly around 80%, 85% of the business there for Dabur's Oral Care and Hair Oils.

And we are pivoting. So one thing that we can slow in Hair Oils in terms of premiumization. We are stepping the pedal on the premiumization in Hair Oil also by plugging the gaps where we are not present. In last 1 year, we plugged the gap with cooling oil with launch of Cool King. And Cool King has gained a little market share of around 3% to 4%. And in the coming summer -- summer's heat, I think we'll gain the ramp up of our cooling portfolio.

Ayurvedic Hair Oil which we launched in South India is also showing tractions. And we are launching premium variants on e-commerce and in modern trade. That's as far as Hair Oil is concerned.

As far as Shampoo is concerned, Shampoo currently is -- as far as Shampoo is concerned in Hair Care category is growing by 3%, we're growing by around 11%, thereby, substantial market share gains there. Our sachet portfolio has gained substantial ground in rural, driven by our rural distribution. And in modern trade and e-commerce, the large packs are continuing to do well.

As far as Oral Care is concerned, our growth is 8%, backed by a volume growth of 5%, as compared to the competitor where it is only 2%. So therefore, we are substantially increasing our penetration. We are the #2 brand in the country now after the market leaders. And [indiscernible], the #2 player, happens to be a very big player.

We've plugged the gap in Oral Care also in terms of gel, Red Bae gel is what we launched a couple of months back, and that's notched up turnover of around INR 17 crores and gained a market share of around 1% to 1.05% in the gel category. So we are also looking at revenue gaps in other parts of our portfolio.

That is on -- so Dabur Red continues to do well, growing ahead of the curve. So we gained around 8.8% market share as far as gel and Red toothpaste is concerned. And Meswak registered a double-digit growth, on back of market share gains.

So our Herbal portfolio, still a lot of work needs to be done there. There, we [ flesh ] market ourselves in the South of India, and we'll be extending our Herbal Toothpaste portfolio across India also. So that's as far as the Oral Care portfolio is concerned. The penetration of Herbal category has actually gone up in the market. And I think on back of that tailwind, we will continue to ramp up our Herbal Care franchise as well.

[Mihir Shah, analyst]

Got it. Understood. So my second question is on the Health Care portfolio. Can one expect the late onset of winter benefit 4Q sales? Or will the inventory in the channel be sufficed to take care of the demand? And can you also talk about the progress in the therapeutic initiatives that we had called out earlier? What kind of incremental sales can be expected? And from when can we expect that, sir?

[Mohit Malhotra, executive]

Yes. So there's not much of implication on the business side of the Hair Care portfolio is concerned. So I think Hair Care returns are muted. So we feel that Hair Care is a [indiscernible] of a double-digit secondary growth for us will actually continue going forward, and we will continue to surge ahead of the category growth rates and gain market shares as far as Hair Care is concerned. And source of potential there like I told you 80% market is still there.

In Chatcola, market share is only 7%, and around 93% of the market is there for us to be -- the Herbal category or even on back of that we continue to gain share in Chatcola and also in Hair Oils. So I hope the summer is good. And Hair Care is somewhat [indiscernible] for us.

The summer is good. I think the business will trend up well, but our strategy doesn't change. I think [indiscernible] is concerned our strategy is to have flanker brands, lot of core brands with Dabur Amla and create more around that and be present in terms of pack wise architecture on all price points of [indiscernible].

As far as therapeutic portfolio is concerned, we created the division for the [indiscernible], which is also selling their product, and it's grown by around 14.8%, around 15% growth of therapeutic portfolio, which is driven by baby care, our branded ethical division, and also our pharmaceutical division, by which we go to the dermatologist. So that's trending well and doing well.

[Mihir Shah, analyst]

Sir, I was asking for health supplement, the Health Care, not the Hair Care, sir. The late onset of winter on health supplement, health care portfolio.

[Mohit Malhotra, executive]

No. my mistake. My mistake. I apologize. So yes, health supplement business definitely got impacted because this time the winter has been little muted, contracted and also delayed. So all three factors in the winter impacted our health care -- health supplement portfolio, so we call it.

Basically, Chyawanprash and Honey is categorized in it. So Chyawanprash business got impacted and therefore, the growth was very muted. We had a flat growth as far as Chyawanprash is concerned.

So that -- we put in the stock. But one good thing, what is happening is that the winter is getting delayed. So whatever stocks that we put out at the stock case is going to get now lifted in the marketplace.

And we've shared the [ SCR ]. The SCR will get liquidated with the winter getting delayed, the optics will happen. While the sale will not take more stocks. So the growth will be what the growth is in the quarter 3, but the optics will happen going forward in the quarter 4 for us. So I think flushing out of inventory will happen there.

As far as Honey is concerned, we've seen an 11% growth as far as Honey is concerned in terms of penetration of the category. So any category is doing well, and we are ahead. The pre-COVID category growth levels also have stabilized. We've gained market share in Honey by around 33 basis points and is doing extremely well for us.

So all the new players made an entry because the honey category hasn't taken by Dabur Honey and we continue to make good strides in Honey. And the category is also growing well as far as Honey is concerned. So we are looking at moderinzing of Honey. We launched premium variants of Honey called Organic Honey, Forest Honey, Sundeabans Honey, et cetera. They are all getting a good traction in the marketplace and also a squeezy brand with multiple SKUs down the market place is facilitating the breakfast usage on the regular usage to breakfast usage. So Honey is also doing well.

As far as Glucose portfolio is concerned, the winter -- the summer is good for us. Our Glucose portfolio is also fine. Glucose also increased market share albeit being north -- winter not being the right season for Glucose consumption for you. So that's a health supplement portfolio for you.

[Mihir Shah, analyst]

Got it. Sir, one last bookkeeping question. Adjusting for the INR 22 crores of one-off of legal cost and other expenses, the cost has still gone up. Is there any additional cost? Or will this be the new normal going forward?

[Ankush Jain, executive]

Mihir, just to add on. Excluding this, this is 10%. But if you see at YTD [indiscernible] there's some phasing issue of certain expenses. But if you see YTD, excluding [ legal costs ], other expenses has grown by only 4%.

[Operator]

The next question is from the line of Abneesh Roy from Nuvama Institutional Equities.

[Abneesh Roy, analyst]

Congrats on good recovery. My question is on Shampoo business. So it is your star category within your mix, so 11% Y-o-Y growth and 15% CAGR over 4 years. So I wanted to understand, is pricing a big component of this, both on Y-o-Y and 4-year CAGR basis? And in terms of the Naturals, within Shampoo, how would that move within the last 4 years? Because the growth seems much stronger than the industry growth rate of 15% CAGR over the last 4 years.

[Mohit Malhotra, executive]

Thank you, Abneesh Roy. So I think we've been sustainably growing. So I'm commenting upon recovery. I think it's sustainable, enduring growth that you've shown quarter-on-quarter. There's no recovery here as such. So I'm commenting on your choice of words there first.

As far as Shampoo is concerned, sorry that was for fun. As far as Shampoo is concerned, all the Shampoo business, yes, our growth has been the industry beating growth of around 11%, and this growth is coming on back of both rural as well as urban.

In rural, our sachet distribution has actually gone up. And because of sachet distribution, I think this growth has come because we put ahead of the curve, rural distribution network and infrastructure and our sachets are actually riding that infrastructure, and that's why this growth is coming.

So sachet is not price-sensitive to your point and we are maintaining. There is no price growth here. It is more volume growth. Entire growth is volume growth as far as sachet is concerned.

Now coming to bottle. Bottle is more on modern trade and e-commerce phenomena. We are introducing premium variants in our Shampoo, which we think will -- it's early days for us to comment, but I think premium portfolio in bottle should be driving pricing growth.

As far as our regular bottle is concerned, we are driving bottle, which is very low. It's 20% of our overall portfolio and -- which is continuously growing and gaining market share in modern trade and e-commerce.

So that's as far as -- we have a huge headroom in Shampoo, to your point, because our market share is only 7% here.

[Unknown Executive]

And the Herbal category is still very small.

[Mohit Malhotra, executive]

And Herbal category is strong with higher growth rate as compared to the normal herbal category here, also, which is basically [indiscernible] the oral care. Oral Care and Herbal category is around 30%. And we feel that Shampoo also will have a potential to go up to around 30%, 31% the way it is as well as Oral Care is concerned.

[Abneesh Roy, analyst]

My second question is on Oral Care. So when I compare market leaders' performance in Q3, they claim to have grown double digits in Toothpaste, with a low single-digit volume growth, which implies almost high-single digit price plus mix growth. So if you could tell us what kind of price does mix growth you would have seen in Toothpaste?

And second, when I compare your portfolio in Toothpaste versus the market leader, clearly, in premiumization, you would need much more products. I do understand the Gel Red Toothpaste, et cetera. But if you see, consumers in terms of the market leader, the options in terms of sensitive, whitening and so many products, would you also now need to think beyond the normal way, which you are thinking, say, Naturals being extended to gel, et cetera? That is good, but is that enough from a 3- to 5-year perspective from a premium kind of a market share?

[Mohit Malhotra, executive]

Yes. So I think very well eluded Abneesh, you're absolutely right. As far as the first part of your question is concerned, volume and value, we've grown 8% in terms of value, which seems equivalent to the market leader.

While our volume growth has been 5% in line that we have a 3% of price factor as far as Oral Care is concerned. And going forward, we want to drive our volume and increase our penetration levels, which is the part of the core that we do. But premiumization and trying to plug the gaps, where market leaders paving the way, I think that is the way.

Also identifying more gaps in the premiumization is what we would follow. You will see that change as far as Dabur's portfolio and Yoddhas is concerned. So we are working on the same and trying to capture those premiumization segments, which includes whitening, which includes tartar control, which includes gum, which includes sensitive, et cetera, et cetera.

So our full-year CAGR is around 11% in Oral Care, and we've been growing ahead of the category. And we feel Natural, as a subsegment is growing 200 basis points ahead of the non-Natural. So that element is there. So Natural plus scientific benefit, is the way to go in the market.

So that's what we will see those changes in the next 2 to 5 years. I think 2 to 5 years is a long period. I think in next 1 year, you will see a couple of initiatives from our side.

[Abneesh Roy, analyst]

Sir, last question is on Badshah. So Q2 Y-o-Y growth was 16%, which has jumped now to 33%. That's a sharp acceleration, but there is a sharp inflation also in spices. So this good recovery, in terms of growth number, how much is because of pricing? And in terms of exports and going beyond the 2 states, what is the status on that?

[Ankush Jain, executive]

So in terms of -- Abneesh, in terms of volume, volume is close to 20%, 23% in this, and balance is pricing 9% to 10%. And currently, it is primarily in 2 states. A bit of exports we have started. There's still alignment with certain countries, but most of this growth, I would say 90% of this growth is coming from organic sales -- same-states only, as of now. But there are plans to expand this to other geographies, and we are aligning the room to market with our current setup.

[Mohit Malhotra, executive]

Yes. So just to add to what Ankush just said, I think huge vectors of growth possible in Badshah. I think, first of all, as you know, spices is very customized in different regions. So today, we are only navigated to the Western region, and there's a potential of enhancing the portfolio from the Western-related salad product portfolio to more North driven to South driven.

This is what we guys are working regarding portfolio expansion. Then distribution expansion, we are only limited to Gujarat and Maharashtra. I think, going forward, we will extend ourselves to adjoining states, which is what the plan is to extend it to Madhya Pradesh and Rajasthan also and extend distribution and leverage Dabur's distribution and expand our distribution.

The third vector is international business. International business, to Ankush's point, hardly [indiscernible] around 5%, 6% of Badshah sales which going forward, will go up to like Dabur's International business of 30%. So the potential is there. So there were gradually, slowly we will be inching up our international business.

We are in the process regulatory -- reconforming our portfolio to go to markets like U.S. and U.K. as the regulatory conformance is in place, and we have GMP practices. We will start exporting. And the demand is there, but we are not able to export there.

Then the fourth vector is our gaps in our pack-price architecture. We have gaps in our portfolio in terms of INR 5, INR 10 pack. I think that has to be plugged also. And then the fifth vector is advertising in demand generation. We've barely done advertising on Western and regional channel.

Actually, we've got even started advertising the product. So huge growth potential, and we see the category is very big. Our market shares are in the range of around 2% to 3%. So I think there's huge headroom to grow there.

[Operator]

The next question is from the line of Arnab Mitra from Goldman Sachs.

[Arnab Mitra, analyst]

Great to see improving growth rate for you. I read the comment in your release, which talks about rural growing ahead of urban by 200 bps. This is kind of, obviously, a bit contrary to what we've heard from other companies. If you could just help us understand, is it specific to you because of initiatives? Or there are certain categories where you're seeing rural grow ahead of urban? And how do you see this pan out?

[Mohit Malhotra, executive]

I think Arnab, this is specific to us. So our rural growth is in the range of around 6%, 6.5% as compared to urban, which is around 3.8% [indiscernible] from 5% growth. Rural is growing on back of urban initiatives that we've taken on back of building infrastructure in rural. Our reach in terms of villages have moved up from 1 lakh villages to 1 lakh, 17,000 villages. We have added around 7,000 Yoddhas in past quarter. Overall, our Yoddha network goes up around 18,700 kind of Yoddhas.

So I think the playbook for seeding our infrastructure investment in the rural is well on place. As far as direct reach is also concerned, our direct reach has moved up by 2 lakh. It's the highest in the FMCG sector, direct versus indirect as well as [indiscernible] is concerned. So around 2 lakh outreach has increased. So that's tremendous. I think a lot of execution has been done.

And then now to leverage this infrastructure that we've build, we've also curated a rural portfolio, which is an accessible price points in all our power brands. So basically -- which is like a portfolio for people to carry in the rural. And that has also helped rural growth to surpass the urban growth for our case.

But it may sound -- urban growth is muted, both our urban and rural growth is ahead of the category growth. Even in the urban, we've actually increased market share and our growth are higher than the FMCG growth in the urban in their respective category. There, it is up by 100 basis points. In rural, it is up by 400 basis points from our subscribe category growth rates. So that's where we are.

[Arnab Mitra, analyst]

And just a follow-up on that. So this rural expansion that you have done, do you see this as a continuum that you continue to expand over the next few years? Or with this expansion, you would now take a pause and try to get more throughput and use this infrastructure better?

[Mohit Malhotra, executive]

So not really. I think we are on a path to only expand this overall distributions. There's a huge headroom. And a lot of FMCG big boys are actually paving the way and showing us the best-in-class examples, and we have to just follow those examples. There's not much brainwork happening here. So there are 6 lakh villages. We are barely reaching out to 1.17 lakh villages. We've targeted ourselves to go up to around 1.2 lakh villages going forward. Next year, it will be 1.3 lakh. So we'll keep adding the number of villages here. And the Yoddha network and the playbook like you were saying is already in place for us.

Portfolio has been curated. So we will be adding the price points of the portfolio to leverage because INR 5 now INR 10, INR 10 now INR 20. So the pricing ladder has to be perfect for the rural, and that is what we are looking at, which helps us increase the penetration.

So this journey will continue having the rural growth. And no question of taking a pause in consolidating rural. I think expansion will be the name the game in India. And it also will be -- south, east, west, I think there's a huge potential to grow.

[Arnab Mitra, analyst]

And my last question is on margins. So in the last 2 years, we have seen the fourth quarter margins suddenly be much lower than the first 9 months because of probably some phasing in other expenses. So just wanted to understand, as we -- like your first 9 months, EBITDA margin has been 20% despite the legal costs being there.

Is there any reason to believe this margin would be much lower in the fourth quarter because of phasing or the last 2 years for aberrations? Because this change wasn't there in the previous pre-COVID period as we have seen.

[Ankush Jain, executive]

Yes. So Arnab, I think, first of all, you can't see sequential margins. The margins are, in our business, pretty seasonal. So last quarter is heavier in certain product mix and hence it is more. So it can't be 20% lower in Q4. And if you see our 3-, 4-years trajectory, that has been [indiscernible]. So Q4 margins are the least. So [ Q3 ] are the highest because of Health Care portfolio and so on. So -- and also some bit of expense phasing might happen, but I would see we will -- I would summarize by saying that the expansion in margins will continue, albeit at a slightly faster pace in Q4.

[Mohit Malhotra, executive]

Yes. One of the reasons what Ankush alluded to is what because of seasonality, I think our Foods business becomes more salient in the summer because summer loading happens, where the consumption of food, beverages happens there. So that's why there's a little bit of margin. But upside on margins will continue the way you see it in quarter 3 because the raw material prices continue to be benign.

So that continuity won't be -- given you a guidance of around 19.5 margin and any upside in gross margins to be deployed into media. We'll continue to do the same. May all our efforts reach to 9.5% margin, despite the legal cost hitting us of around $10 million is what was the legal cost that hit the business, so high YTD. So it might go up to around $10 million, $12 million as fees. So despite the legal cost, we are making all of our trends to around 19.5.

[Operator]

The next question is from the line of Harit Kapoor from Investec.

[Harit Kapoor, analyst]

I just have 2 questions. I just wanted to get your sense on what's your prognosis and [indiscernible] given almost 46% of India portfolio is there. Yourself are doing well, but the market as a whole has continued to be challenging.

In the last 1 year, most of the comments of the FMCG companies have suggested that a recovery is likely, it may be near to medium term, but it hasn't really come about. Where do you think are there -- maybe top 2 or 3 key indicators there that can come turn to -- to make this slightly more full-fledged recovery in the rural market? Just wanted to get your thought on that. That's my first question.

[Mohit Malhotra, executive]

Your voice was not very clear. We couldn't decipher what -- pertaining to rural recovery?

[Harit Kapoor, analyst]

Yes, my question is on rural. It was really -- over the last -- just a second, please.

[Mohit Malhotra, executive]

So I'll try to answer what I've understood about your questions. So please interrupt me in case I don't answer your question. I think rural -- if you look at rural, it's got impacted. And if you look at FMCG growth, urban and rural, rural actually has gone down in the past 2 quarters now.

And I think my hypothesis of my prognosis is that this has gone up because food inflation has started once again or has not abated. So if you look at fruits, vegetables, spices, cereals, et cetera, we have seen inflation pick up in the range of around double-digit now. And in this rural, where per capita incomes are lower, the incomes are skewed towards consumption of essentials and therefore [indiscernible] get impacted, and that's why it's got impacted.

We have given a very gradient sort of results because of the initiatives that I spoke to [indiscernible] question, because of village expansion, outlet expansion, portfolio creation. That's why it could be to what the market is saying. But that said, there is a year-on-year growth as far as rural is concerned. That's I think a positive sign.

If you look at the sentiment -- consumer sentiment in the market, where rural plays a very big part, that is improving. That's in the range of around 90% odd, and elections are approaching. So I think there'll be a lot of government investments, which will happen on infrastructure, which will help rural. And also some rollouts will be given by the government to the rural, which would only increase the disposable income for the rural pickup profit.

But the gap, one very positive sign that I see is [indiscernible] the gap between urban and rural is reducing for the past 3 quarters. We saw a gap between urban and rural of 800 basis points, which were reduced to 600 to 400. So now it's only 200 basis points, if you see. That's the difference.

So as the gap narrows between urban and rural price going off, I think rural recovery is eminent to happen in the country. So I think, about 1 or 2 quarters, we will see -- I think the rural recovery is on the way. An election, I think, will only help the rural recovery and help others.

[Harit Kapoor, analyst]

Very helpful. And one short question. You've dealt with this legal issue for the last few quarters -- last 2 quarters, at least a few months now. Just wanted to get your sense on where we are here. And any visibility on how long you may have to kind of deal with this 3 quarters, 6 quarters, 8 quarters? Any sense on that?

[Ankush Jain, executive]

So maybe, Harit, yes, Harit, I think there -- over last 2, 3 quarters, while we are [indiscernible] engagement with the lawyers, they have been sent with a discovery phases, discussions with [indiscernible] et cetera. But 1 or 2 positive news I can share, the courts have decided on the corporate separate business, which means that the case is now restricted only to products sold in the U.S. by Namaste Legal Entity. So any of the Dabur affiliate or Dabur products are out of the scope of this case, which means that it impacts one way as there is a [indiscernible], and it is only restricted to U.S. as of now and not for products sold anywhere else…

[Unknown Executive]

And even Namaste products sold outside of U.S. or outside the purview of the legal basis.

[Ankush Jain, executive]

That's a positive development, while we are still in discussion and there's some good of discovery base and the matter…

[Operator]

[Operator Instructions] The next question is from the line of Sheela Rathi from Morgan Stanley.

[Sheela Rathi, analyst]

Just extending to the previous question on the litigation-related issue. Just want to be sure that with respect to the legal cost, is there any change in terms of how we should see the impact on the P&L, at least for the next 3, 4 quarters?

[Ankush Jain, executive]

We have, in the recent past, change of our lawyers. Earlier we have the one of the lawyers whose fees was much higher. Then if we get lawyers, whereas in the effectiveness of the true lawyer [indiscernible] the earlier ones. And the cost effective from, let's say, October onwards has already reduced. And we do not see the same cost will be there in the financial year '24, '25. It will be lower than what has been in this current financial year '23, '24.

[Sheela Rathi, analyst]

If you could just give us some idea as to how much that would be?

[Mohit Malhotra, executive]

Yes. So Sheela, roughly, we are spending roughly around INR 20 crores is the cost that these people are incurring. And -- so that cost will remain. For [indiscernible]. But we already have a product liability insurance in play.

The source is pertaining that we're [indiscernible] is pertaining to the lawyer fees, which is what we are incurring from our pocket. But any cost that comes in as outcome of the final judgment of the case, just in case it comes, that should be covered by the insurance. And we have a product liability insurance in place for that.

[Ankush Jain, executive]

And even on that, I will add to what Mr. Malhotra said. The legal costs are also covered under the insurance policy. Currently, to be on the conservative side, we have provided the full legal cost. And whatever recovery we will have from the insurance company, that will be [indiscernible].

[Sheela Rathi, analyst]

My second question, again, it's a repeat on rural trends. But Mohit, I just want to understand, are there specific markets for us? I believe, particularly North India, which have been doing well for us, is it any particular -- is there any particular insight you could give us for us to believe that this trend will continue even going ahead?

I understand the distribution expansion, which we are talking about and a rural portfolio, which we have created. But is there anything more detail which you can help us to understand that this quarter, we have seen 6% growth? And this is the gap we should continue to believe that it will continue even going into the ongoing quarter as well as the next?

[Mohit Malhotra, executive]

As far as the geographical mix Sheela is concerned, I think our stronghold remains North India and East India. So in East India and North India, which is also a rural salient kind of geographies. There, we have made substantial progress in terms of our tentacles expanded and our footprint expanding in the rural. And that has actually given us a good growth.

That said, even on the back of Badshah distribution, and now Badshah and Dabur is going to rural West, I think on back of that, we are seeing rural [indiscernible] would invest. South was a little, not so great for Dabur because we don't have that kind of a branch if we're going to strengthen South.

So that apart -- but the major part of the business, South only contributes to approximately 20% of our business. 80% of the business comes from the other parts, where our rural distribution, coupled with our brand equity and coupled with our portfolio creation, has really worked for us.

And also advertising, that we have increased by around 30% in India [indiscernible] in the PAN India Hindi belt so we say. So I think it's more UP, MP, Bihar, Rajasthan, Maharashtra, I think that entire belt is pretty salient for us there. I hope I've been able to help...

[Sheela Rathi, analyst]

Absolutely. And just the third question and the final one is with respect to us gaining a very strong market share, with respect to the Odomos and Odonil portfolio? And if you could also press on [indiscernible] would be very helpful.

[Mohit Malhotra, executive]

Sorry, Odomos, Odonil, and then last part of your question, I couldn't get it.

[Sheela Rathi, analyst]

Mohit, I saw the brand name on the presentation. I think that's your liquid vaporizer.

[Mohit Malhotra, executive]

LVP. Okay, okay, I get you. So the earlier strategy for the business was to keep us restricted to Odomos, personal application, product cleaning, which was the product is the application, dermatology application cream. And we have changed our strategy from not just restricting for a small market of [indiscernible] cream, which is personal application to increasing the addressable market to the larger market.

That's where we've extended Odomos from a personal application cream to oils now, to gents now, who also know LVP stuff. So as far as Odomos is concerned, it's a mosquito repellant for us. And that's the market that we are addressing.

So it is like chai market for us that we are expanding as a group. On back of that strategy, I think premiumization is working on Odomos for us and also [indiscernible] extensions. On back of that, there's been a huge growth, 1,000 bps here in the postal application category, because all these extensions are adding back to the mother brand, and the mother brand is adding back to the extensions also, so it's working very virtuously for us.

As far as Odonil is concerned, we are, again, doing the same thing, air freshener category, extending ourselves to all the formats. Earlier, Dabur was only restricted to [indiscernible] blocks, which is what you know, it's basically a toilet air fresheners. Now we've extended ourselves to air fresheners for rooms. We have extended ourselves to gels. We very recently added a gel pocket, which has done exceedingly well. And zipper pouches have done well.

So all our innovations are actually firing. We are looking at driving solutions also here. So on the back of all that, I think the business is really trending well. Our NPD in overall home care will be in the range of around 3% to 4%. But under the pharma brand architecture, which doesn't require additional investment.

So when we advertise a new variant like LVP, we've just taken [indiscernible] of the brand. And I will request the investor team to share the creative [indiscernible] with you on LVP also [indiscernible]. That is really adding back to our Odomos.

We've generated -- it's just been around 3 months that we launched it, then we generate the business of around INR 7.5 crores to INR 8 crores on LVP. And that's our strategy, which is firing in the Home Care for us, yes. And in Odonil, by the way, for premiumization to happen, we've also introduced diffusers.

So if you can go to Amazon, you will find Odonil diffuser now. They have got listed on Amazon, and that's the news that we got today. So that will be very premium in adding to gross margin. Likewise, all our key power brands in our premiumization as we speak by value-added products being introduced in there.

[Operator]

The next question is from the line of Shirish Pardeshi from Centrum Broking.

[Shirish Pardeshi, analyst]

On Slide 9, your comment is a newly set up therapeutic division has reported double-digit growth. So I think last time when we met, it was a lot of excitement we have seen around. So maybe if you can give more color of what is the depth? What is the distribution? What are the products which are firing? And maybe more color on that what is more needed to do in that newly carve-out division?

[Mohit Malhotra, executive]

Yes. Okay. So Shirish, there's still a lot of excitement around it. As you know, Philipe has joined us, who's the Chief Executive of Himalaya. I think the news becomes old, but the excitement still remains. So I think there's no lack of excitement in here. So Philipe is still driving the business very well.

So we've created this advocacy vertical, in which we are actually creating a bridge from Dabur to the allopathic doctor. Till now, our connect used to be the Ayurvedic doctor. The change of strategy is that we will now do advocacy to allopathic doctor. It's going to be a slow burn, but surely a good return business in long term.

In 1 or 2, 3 years, we will be able to bridge the gap that we have between the doctor and Dabur. And Dabur will not to be considered only as Ayurvedic but as a scientific Ayurvedic organization, selling and doing advocacy and providing signs of efficacy to the allopathic doctors, it's one of the reasons why they don't prescribe complementary or supplementary medications to allopathic medicines.

So that was the whole logic of the strategy of building an advocacy vertical. We merged our Fem Pharma division with our branded ethical business and also on Baby Care business. So all the 3 have been plugged together. So we are selling therapeutic hematology products here. We are selling baby care products, and we are selling all branded ethical products in addition to single herbs and nutraceuticals through this portfolio. This portfolio is doing very well. We've got a growth of around 14%, 15% on that, where the division has just come in place. And we are looking at incremental turnover coming from the…

[Ankush Jain, executive]

So I think, Shirish, almost INR 95 crores we have done so far in 9 months, so very, very tight for an average. And YTD growth is almost 21% from the quarter three 14%, but YTD growth is 21%.

[Shirish Pardeshi, analyst]

Wonderful. Ankush, on the margin front, though Mohit has said that we will maintain between 19.5%, 20%, but at this point of time, if I need to check, which are the raw materials looking inflationary? Or maybe if you can say that, how much is the deflation which you are seeing?

[Ankush Jain, executive]

So in the current quarter, in India, we are almost 4-odd percent of deflation, while global level we had 2% deflation. Going forward, while -- the mix of inflation is changing. It's moving inflationary -- inflationary trend is more in food and imported concentrates, et cetera, and spices.

While we see that this should remain broadly this, at least in this quarter. And the gross margin expansion, which was around 200 bps in India, possibly should also remain slightly in this range. Thought it may moderate given that price increases, [indiscernible] broadly happened.

[Unknown Executive]

And deflation will start coming into base.

[Mohit Malhotra, executive]

And deflation will start coming into base. Yes. And most of the HPC categories, like mustard oil, oils, et cetera helped me. Most of the inflationary benefits have come so far and some bit of there will remain in Q4 as well. By next year's budget we are still in the process of making…

[Shirish Pardeshi, analyst]

Yes, that's helpful, Ankush. But I was just trying to understand if this is the stability which you are seeing. Is there any room for price inflation next year we have budgeted?

[Ankush Jain, executive]

Price inflation. Price increase. Again, as I said, too early -- sorry? Yes, too early to comment on this point. Price increases definitely will come. We continuously benchmark our products with competition. Also wherever, we are market leaders, we increase prices. Plus, as Mr. Mohit said there will be premiumization opportunities as well. So a combination of that will lead to some price increases. But yes, it will moderate. We have also taken roughly, in this quarter, including the overlap around 2.5% of MRP-led price increases. Part of it will also for next year -- in the next quarter.

[Mohit Malhotra, executive]

We also -- Shirish, this is like, so what Ankush mentioned in addition to that, we've just taken a price increase on our foods portfolio, which is inflationary. So in Juice portfolio, we've just taken a price increase, a fresh price increase.

So I think price increase going forward in the year will depend upon how the inflation are [indiscernible]. If the inflation goes up with the food business, then we will have a price increase. But as of now, platform foods portfolio and spices portfolio, the rest of the raw material, 5G materials designed for us -- so we will see expansion of gross margins on back of the benign [ RFP ] prices.

[Operator]

The next question is from the line of Vishal Punmiya from YES Securities.

[Unknown Analyst]

Just 2 small questions. Firstly, on the e-commerce business, what you mean the growth in 1H for the business? And what is the contribution?

[Mohit Malhotra, executive]

Yes. E-commerce business in the current quarter, the contribution was around 8.5%. And the growth is around 20% in e-commerce. And YTD -- 20%. 20%. This was a muted quarter as far as promise is concerned, but otherwise, YTD, you'll see a growth contribution of about 9% to 9.5% coming from e-commerce, for us. And the growth will be higher in the range of around 30%.

[Unknown Analyst]

Understood. Understood. And secondly, there have been a lot of media news regarding FMCG companies becoming slightly aggressive in terms of activations in the region of Ayodhya. And we have also launched special edition impacts. But apart from 4Q benefit, do you see a sustainable benefit in FY '25 in this region?

[Mohit Malhotra, executive]

[indiscernible] is the core for Dabur. And this is like -- we invest behind power brands, seasonable power markets. So we will continue to invest behind the power markets, and they give us the maximum bang for the buck in these markets.

And entire UP belt [indiscernible] in Bihar, more, have a very high salience of Dabur. So we will continue to invest in our core markets. They are absolutely good for us. And we feel that these activations will only give us a long-term enduring gain going forward.

[Unknown Analyst]

And this would be across the portfolio? Or is there any particular portfolio, which is slightly more biased in this region?

[Mohit Malhotra, executive]

So we are basically taking up power brands only, within power brands, Red toothpaste and Dabur Amla are the most salient. Because Chyawanprash, honey becomes seasonal for us. In the power plant, this is more salient than juice. Saliency is also low in this region. So it's basically the HPC portfolio, which is more salient here.

[Unknown Analyst]

Understood. Understood. And lastly, just one clarification on the margins comment that you made earlier. So last year, this obviously was a very low days quarter in terms of EBITDA margin in the region of around 15%.

So while I do understand that seasonally, it's a lower margin quarter, but there would be a sharp increase in margin for [indiscernible], even if you build 19.5% margin in FY '24.

[Ankush Jain, executive]

Vishal, the question is around Q4, as I said earlier, you don't see our margin question. Q4 obviously is a different product profile and had a is slightly lower than the overall first 9 months margins.

Having said that, our assessment at this point of time is that the expansion in margins will definitely be higher than what it has been in the past 9 months. So with our expansion in margins, including the legal cost is 50 bps and now. In quarter 4, it will be higher then.

[Operator]

The next question is from the line of Priyank Chedda from Vallum Capital.

[Unknown Analyst]

Sir, my question is on the Ayurvedic, sorry, the therapeutic strategy that we had discussed while we met in the Investor annual meet? And I just want you to touch base upon the incremental sales that we were targeting.

So from INR 2,500 crores to INR 5,000 crores, we see the incremental sales of INR 2,500 crores over 5 years. How will this be divided across the existing categories? And also the new categories, like baby care, tea and the therapeutic allopathic side. If you can help me on that, what has been the progress in terms of any numeric data that you would like to share that you would want us to track?

[Mohit Malhotra, executive]

I think [ NPD ] contribution, innovation contribution, basically growth will actually come from the power brands that are there, you've already listed out 4, 5 power brands that you already have in the health care portfolio, which you have like [indiscernible] joined the company [indiscernible] digestive Hajmola is there, Chyawanprash is there, honey is there, these are power brands and most of the growth will be centered around these power brands. NPD contribution will be in the range of around 3% to 4% coming in, which will be driven by more baby care.

Baby care. We've already launched up a turnover of INR 27-odd crores. This almost double of what we've done last year this time. So that's done well for us. There's branded ethical which should contribute to the growth services there. Then we have introduced chai, tea. Tea has the registered turnover of around -- Vedic tea introduced turnover of around INR 10-odd crores, and that is doing well, showed a good traction in the marketplace.

NFT is what we've introduced, that should also come in and help us in the growth. The nutraceutical verticals that we rolled out, therapeutic division is selling that, and that should launch up in terms of sales and pretty much. So I think around 3.5% to 4% should come in from the NPD and rest will be the power brands in the health care portfolio. Should contribute to that growth in the health care.

[Unknown Analyst]

Got it. And if I heard correctly, the therapeutics division is right now contributing INR 95 crores over the last 9 months, which means that we are at a run rate of INR 25 crores, INR 30 crores per quarter. Am I correct?

[Unknown Executive]

Around INR 30 crores, INR 35 crores.

[Mohit Malhotra, executive]

INR 35 crores per quarter. Correct.

[Unknown Analyst]

INR 35 crores per quarter. And we had a team, which was working with Philipe Haydon and the team, which was going to target the doctors. What is the count, if you can help me with that, we had 500 people recruited for that? And what has been the increase in the doctor coverage? Any numbers on that, if you want to highlight?

[Gagan Ahluwalia, executive]

I think the numbers not have changed significantly right now, but we are on the track of slowly increasing our coverage. We are right now consolidating the processes of the system. And by end of the year, we'll be able to give you a better update on where we stand on the coverage.

[Unknown Analyst]

Got it. Does this mean that FY '25 will have a significant development done on this whole of the therapeutic segment linked to the power brands? Should we see more developments happening and more action happening in FY '25?

[Gagan Ahluwalia, executive]

Yes, certainly, there will be new product launches. There will be ramp up of the therapeutics division. And of course, a lot of investment behind power brands, which will help us move towards our objectives for health care.

[Unknown Analyst]

And just a clarification again, on the INR 35 crores per quarter run rate or INR 100 crore sales via therapeutic segment is something which was not there in the previous years before we activated this new category or new segment, correct?

[Ankush Jain, executive]

No, no, it was in the base as well. But because of the enhanced focus, the growth has been around 20%, 21%.

[Gagan Ahluwalia, executive]

Accelerated.

[Ankush Jain, executive]

Yes, it has accelerated our growth. So it was in the base, and the growth has accelerated.

[Unknown Analyst]

Sorry, the voice was not clear. If the sales were down in the base, but because it's growing at 30%, so we should consider that it was earlier INR 70 crores, INR 80 crores, which is now INR 100 crores?

[Ankush Jain, executive]

Yes, correct. [indiscernible].

[Mohit Malhotra, executive]

To give a flavor, we are leasing out 2 pediatricians, GPs, dermatologists and gynecologists. So in the quarter, the number -- if you want to know, 22,000 is pediatrist we reached to and around 12,000 dermatologists and 22,000 gynecologists that we reached out to as the -- that's what -- so around 60,000...

[Gagan Ahluwalia, executive]

70,000.

[Mohit Malhotra, executive]

70,000, 75,000 doctors broadly total is what we are reaching out to. And the universe is obviously very huge. So we're just scratching the surface. And this, we are reaching out with some additional recruitment with the existing team. We'll keep adding personnel as the portfolio keeps expanding and regionally we keep expanding. So that's broadly -- exact numbers, I think as we were preparing the budget, we can share with you in the next con call.

[Operator]

Thank you. As there are no further questions, I would now like to hand the conference over to Ms. Gagan Ahluwalia for closing comments. Over to you, ma'am.

[Gagan Ahluwalia, executive]

Thank you, everyone, for your participation in today's earnings call. Webcast, audio recording, and transcript of this call will be available soon on our website. Thank you, and have a nice evening.

[Operator]

Thank you. On behalf of Dabur India Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.