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Dabur India Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 results for investor 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. Good afternoon, ladies and gentlemen. On behalf of the management of Dabur India Limited, I welcome you to this conference call pertaining to the results of the quarter and financial year ended 31st March 2019. We have with us here Mr. Mohit Malhotra who has taken over as Chief Executive Officer of the company. Also, we have with us 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 will start with an overview of the company's performance by Mr. Malhotra, followed by a Q&A session. I now hand over to Mohit. Thank you.
Thank you, ma'am. Good afternoon, ladies and gentlemen. My first conference call with you all, so I think we should all be mindful of the fact that this is my first call. With that, I'll start off. Welcome to Dabur India Limited's conference call pertaining to the results for the quarter and year ended 31st of March 2019. Dabur's consolidated revenue grew by 11% during the financial year '19. Domestic FMCG business recorded a growth of 13% in financial year '19, driven by a double-digit volume growth of 11%. All the 3 verticals of Healthcare, Home and Personal Care and Foods recorded a strong growth led by investments in brand building and distribution expansion. International Business reported a growth of 6.5% during the year and was impacted by macroeconomic headwinds in the MENA region and adverse currency movements in markets such as Turkey and Pakistan.Before we move to the quarterly performance, I would like to give you a perspective of our long-term strategy since I take over as the business head. The overarching theme for Dabur is to strengthen the long-term health and competitiveness of our brands and to grow ahead of the market in order to gain share across categories. Investments will be concentrated on power brands such as Dabur Amla in Hair Care, Dabur Red Toothpaste in Oral Care, Real in the Beverage and the Food space, Dabur Honey in Honey category, Chyawanprash and other 3 scalable, Lal Tail, Pudin Hara and Honitus brands, with disproportionate investments that shall be made. This initiative is already yielding positive results in all the 3 brands wherein we disproportionally invested, with strong double-digit growth during the year, largely with an illustrative growth of 15%, Pudin Hara, 21%; Honitus grew by 17%. In order to drive and innovate the agenda, power brands will be extended into adjacent areas in order to leverage their strong brand equity and consumer connect.Further, in consumer health, we have a large, ethical Ayurvedic portfolio which would be transitioning some prescription brands to the OTC portfolio, and once the OTC brands become larger, we will extend them to the larger FMHG, which is Fast Moving Health Goods space. We would leverage our brand strength and R&D capability to pursue these healthcare initiatives since there is a significant head room due to low penetration and lower competitive intensity in the Ayurvedic space. To support our brand-building initiative, we have undertaken projects to increase efficiencies in front-end and back-end supply chains in both India and International Business, which will help the company become leaner and more efficient in the future. On the people front, we are creating a more engaged, agile, and accountable organization. People are the key pillars of the organization, and we have a strong internal talent pool, and we are supplementing the same with talent development and experienced external hiring. The management remains optimistic about the future of the company. Now coming to the quarter 4 financial year '19 results. Consolidated revenues from operations grew at 4.7% in quarter 4 financial year '19. Domestic FMCG business recorded a growth of around 6% on back of volume growth of 4.3%. Excluding Foods, the value growth was 8.5%, backed by a volume growth of 5.5%. Growth was slightly lower than the previous quarters due to prolonged winter season and a general slowdown in demand due to agrarian distress and liquidity crunch. Healthcare vertical performed very well, with a growth of around 11.2%. Health supplements grew at 10.2% led by double-digit growth in Chyawanprash. Digestives category recorded a growth of 11.9% driven by a continued, strong performance of Hajmola tablets and Pudin Hara. New variants, focused marketing inputs and distribution expansion contributed to driving this growth. OTC product categories grew at 16% on back of good growth in Lal Tail and Shilajit. Ethical business delivered a growth of around 10%.HBC vertical posted a growth of 6.8%. Toothpaste grew at 9.3% during the quarter. Red franchise continues to perform very well with increased penetration, aggressive marketing and visibility initiatives. Babool remained under pressure due to high competitive intensity at economy price points. In spite of this our value market share in Toothpaste category increased by 45 basis points year-on-year.The Hair Care portfolio was impacted by demand slowdown and prolonged winter in the North India. That said, our market share in Hair Oils moved up by 70 basis points vis-à-vis same quarter last year. Also, our market share in Shampoo category increased by 64 basis points. Skin Care registered a growth of 11.2%, driven by double-digit growth in Gulabari and good performance of the bleach portfolio. Home Care category grew by 16.2% in this quarter, backed by strong performance of Odonil and Sanifresh. Odomos recorded a subdued performance on account of low instance of mosquito-led diseases. Food business recorded a decline of 5.9%, mainly on account of prolonged winter season, which impacted our largest market, that is North India. The Ethnic Masala range launched during the year in the modern period has received a very positive response from the consumer. Encouraged by this, we are now rolling it out with general trade across the country and are adding a few more variants.Our market share in the G&N category has increased by 540 basis points over the same quarter last year, touching the highest peak of around 56%. We believe the dip in this quarter is temporary and the business will come back on growth track in the coming quarters. International Business recorded a growth of 1.9% during the quarter. SAARC grew by 8% on the back of strong growth in Nepal, Bangladesh and Myanmar. Turkey had a strong quarter, growing by 40% in constant currency terms. However, currency devaluation impacted the translated revenues.MENA markets continue to remain under pressure. However, we have seen our market shares increasing in almost all the categories across the key markets of Saudi Arabia, UAE and Egypt. During the quarter, profitability was impacted by exceptional item and one-offs. Growth in the PAT, excluding the exceptional items and one-offs, was 4.6%, in line with the top line. While the media spend has come down in quarter 4, the overall marketing spend, including trade and consumer promotions, were higher, particularly in India business, where the total ad pro went up by around 4%. A&P spends on power brands have, on the other hand, increased in double digits. Going forward, we'll continue to invest strongly in our brand's distribution and infrastructure to enhance our visibility and market share.In spite of challenges in some of our markets, we will continue to drive the business based on strong innovation pipeline, distribution expansion and enhanced A&P spends. Our endeavor will be to continue to build strong and sustainable enterprise, backed by a brand portfolio which resonates with consumers and offers superior products to delight them. With this, I open the session to questions. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on the market share data in some of the segments. For example, your share has improved in most of the segments, but in Skin, Home, OTC, Ethicals and Digestives, wherever you have the market share, is it possible to share how Y-o-Y performance has been?
Abneesh, in the Home Care and the Skin Care segments, our market shares have actually gone down, and we will tell you the exact number. But there, the market shares -- while the category growth rates have been very high, in excess of our growth rates, market shares have actually gone down in Home Care. And Skin Care, we're much ahead in terms of market shares, much ahead of the category, which is in the Gulabari space. In OTC segments, we don't have market share data available with us, but we have our consumer panel data, and consumer panel data shows that we've actually increased our market share there. The exact market share numbers and the -- can't be shared with you.
And sir, where your market share has improved, are you seeing a direct correlation with growth also? Because you mentioned in 2 other segments, you have seen a, dip in market share, but your internal growth has been quite good. So in -- where growth has happened and market share has improved, is there a correlation?
Yes. There is a definite correlation in all of the segments. We see the Oral Care, like Red Toothpaste, has grown by around 17.5%, and there our market shares have actually improved by around 45 basis points. So there's a direct correlation there. In Hair Oils also we see a growth coming, and the market share data shows an increase of about 70 basis points there also. But I think, in the Skin Care segment and the Home Care segment, the market is actually surging much ahead of our growth pace. While we've grown at around 16%, for the market I think is growing at around 20%-odd. That's why our market shares have actually dipped here. And these are not our power brands also, as we've stated earlier. So we are very happy with the kind of growth rates that we have here, and we're working towards increasing our market shares and growing ahead of the category growth rates.
In 2 of your cost items, more clarity, if you can give on consultancy cost and G&P. G&P, why is it required now? Was it for a new factory?
No. So I think there are 2 elements. We always have the G&P and see improvement areas to have the good manufacturing facilities. We have made expansions, as you know, in Tezpur. So therefore, there is some expenditure required on the G&P side there. The other part is also wherever we have an export under the U.S. FDA rules, we need to upgrade our manufacturing facilities. In order to meet that, there are expenditures which are required to be incurred. So these are the expenditure that you see on the revenue side on account of G&P.
And the consultancy? What was it for?
Sure. So what we have done is, we have taken a project last year to improve our supply chain network during the last financial year. And therefore, this periodical expenditure, that you have -- we have talked about is on account of the consultancy that we have paid in order to have the design and the implementation of the supply chain improvement networking. So that's the cost that we have incurred incrementally this quarter.
Sir, my next question is on the International business. This writeoff of 75 crores, in terms of the goodwill, is it only because of currency devaluation? Because currencies can be volatile. You take a goodwill writeoff based on fundamentals of the business more likely. So if you could update? Is it also because, fundamentally, the business is looking far tougher than you required?
See as far as we talk about the local currency business, we have grown almost 40% in this quarter and around 28% for the year, and if we were to look at, even in terms of our overall CAGR, our growth has been close to 20% in top line and around 25% in PAT. So I think on the local currency, local market side, we have been growing pretty well since inception. It's just the currency devaluation which has impacted the investments that we have made into this acquisition required for the impairment. And we have done the impairment testing in accordance with our accounting standard. And considering the fact that in this particular year last year, there has been currency devaluation to the extent of 40%. That had required us to make a provision on account of impairment of goodwill to the tune of approximately INR 75 crore -- INR 75.3 crore to be precise.
And sir, last question in terms of pricing and promotion. In the past you have said your strategy is to match any aggressive competition. So in Babool and Food business -- in Babool you have seen multiple quarters this issue being there. So are you not going to take action there in terms of matching the competition? And in Food business, I see you have done a lot of promotion. So are your promotions in line with the competition?
Abneesh, the promotions are pretty much -- as far as Food business is concerned, we've been matching up competition with the promotions and the tactical trade inputs also. And you can see the results, as far as the market shares are concerned, we have already the highest-ever market share is there, and that's the result of these tactical promotions. As far as other categories are also concerned, we will keep shoring up our tactical trade and consumer activity to match up with the competition to ensure that we surge ahead of the competitors in the marketplace.
The next question is from the line of Vivek Maheshwari from CLSA.
Mohit, a couple of questions. First, on your outlook on demand for FY '20.
Right. So the outlook demand, we've actually seen across categories a little bit of demand slow down happening in the quarter 4, and that's evident through the Nielsen data and all other syndicated data indicators. Also, we see there was a demand -- I think, P&G growth rate was around 15.9% down to around 13.6%. If you see the exit rates also, they are in around 10%-odd levels, it will be at volume growth rate, which was around 12%, now we see down to around 10%. If you look at the exits of March, they are in the range of around 7%. It's definitely -- the amount of slowdown that we have witnessed, and I think one the reasons could be maybe agrarian distress, the lack of stimulus that are reaching the consumers, unemployment being all-time high and a lot of other macroeconomic factors. That being said, our business got impacted because of more winter seasonality, where the Beverage category also declined by around 3%. But the syndicated data shows that we've grown by around 6% in terms of secondaries and tertiaries, while our primary business is down as well 5.9%. So I think for us, it's a temporary blip in terms of winter seasonality. That's why the business is down. Hopefully, we should be able to recover in the first quarter of the current fiscal year. I don't think any structural or fundamental problem in the business.
Okay. Okay. And on the margin side, how do you -- I mean there has been some bit of a pullback in FY '19 on the margins. What do you think happens as we head into FY '20? Would you want to protect the margins at this level? Or is there any expectation of an expansion? Or it can even slide down further?
No. If you look at the India business, our margins have been more or less stable. The gross margins are pretty stable. I think the cost of the raw material has been benign, and whatever little increase was there, that was set off by the price increases that we could easily take. We want to maintain the margins going forward across categories. We don't want to dip the margins, or there will not be any margin expansion. In case of any cost efficiencies that accrue to the business because of the Lakshya Project that we've embarked on, we did [ plant ] them back into our A&P strength and trying to shore up the volumes, rather than increase the margins. So that was maintenance of margins is that we want to consider.
And I just want to add that where -- there you see there is a decline in margin in our 2 account: one is the one-off expense in the operating margin, that you see on account of the employee costs going high on account of ESOP, which, probably going forward, that one-off adverse impact may not be there. The second is on account of the deep devaluation in some of the markets like Turkey, Pakistan, Nigeria, et cetera. There has been a pressure on the margins on account of transaction exchange. In fact which will get roll over once the 12-month period is over. But that will depend whether there is no further devaluation happening. So that's where the exchange will also have an impact on the margin. But going forward, if there is no steep devaluation, we may not have that impact. But if it happens, there will be some impact on it, on the brand.
Okay. Okay. And quickly on the staff cost, so from first quarter FY '20, is the base reset? Or this exaggerated impact will continue for -- in the first half?
Sure. So I think going forward in FY '20, there will not be that extended impact happening in the next financial year. This was one-off case because of the low base in the last fiscal year, where we have reversed some of the ESOP amount. And at the same time because of the rate difference between the previous region rate and the current region rate, we saw in the FY '19 of '18-'19 financial year, the adverse impact. But going forward, this will not be continued because it will get evened out. And in fact, on some extent, in view of the amortization basics, it may be slightly lower, but at least it will be at a similar level or slightly lower, but it won't be on the higher side.
This may give us a benefit going forward next year because in terms of the ESOP scheme that we have, we have a higher amortization of around 29-odd percent in the first year, goes down to around 26%. So that'll likely add to a benefit going forward. And last year was the closing of our internal vision period. It was the fourth year of our vision period. That, and the -- because of demonetization, we did not do our numbers. Therefore, we had to reverse the stock options. That's why the base was higher there. And that's why you see the lower there, and that's why you saw the growth in the current year. It's around 33% growth in the staff calls that you saw. So it will not happen after this quarter. It's only a one-off case.
Sure. And my last question is on the India tax rate. When does it hit the -- to the marginal level?
Well, I think as far as our tax rate is concerned, it has always been as per the max rate. However, in view of the accounting standards, we had to take the credit of the max in this fiscal year. So if you see that in the current quarter, we have taken the credit on account of reasonable certainty as per the accounting standards. And therefore, you see the rate is lower than 20%, which is the max rate.
Right. But when you get to marginal -- sorry, please go on.
But our max rate will continue for the next, around, 9 to 10 years going forward. So I don't think there is a 5 years going forward.
It is still 25%...
25%, 26%.
Our effective tax rate will continue to be close to the max rate, around 22%.
For next 5 years?
Yes.
The next question is from the line of Prakash Kapadia from Anived PMS.
Mohit, you articulated you now focus on power brands. As we step into FY '20, if you could give us some sense on pecking order of growth, say between Foods, Healthcare and Home and Personal Care, because we have a large product range and some of the power brands are big enough. So if you could give us some sense in some categories, that would be helpful.
See, in the HBC space, definitely our focus area is going to be the Hair Oils category, and that's where we think the growth is going to come from. Then there will be Healthcare, and also, Foods. So in the pecking order it will be more Personal Care, first, followed by then, Hair Care, and then the Foods. And within the Personal Care, there is Hair Care and, also, Oral Care. Hair Care #1; Oral Care will be #2; and third will be Healthcare followed by Foods.
Yes. And Hair Care will be driven by premiumization or -- because that's a very penetrated category?
We are thinking of both ends to the growth potential and the growth pillars, one will be premiumization. Premiumization will be more margin accretive for us, and the launch will be more in the e-commerce space and the modern trade space. So the volume growth would really come from at the lower end targeting the bottom of the pyramid. And therefore, LUP and the INR 10 price points, will be the one which will be the instruments with which the growth will be leveraged going forward.
And in the release as well as in your opening remarks, you did mention about Dabur Red doing exceedingly well. Now I would guess Dabur Red would be more than 2/3 of our business. So has Meswak also de-grown? Babool, you did mention, is facing challenges. So what's the road map for Babool and Meswak? And Dabur Red will be what now, 70% of our value sales?
Yes. Dabur Red should be around 70%, 75% of the overall value. Going forward, Meswak has not declined. Meswak has actually grown by around single-digit -- low single-digit growth rate. But as far as Babool is concerned, there is definitely a pressure in Babool, it's a large franchise. It's more than 100 crores for us. We are definitely going to be revamping the entire brand going forward. So I think end of this quarter should be -- we should be seeing a relaunch of the Babool franchise.
And lastly on Honey. What is happening in Healthcare? We've done well for the year as well as the quarter-over-quarter. Obviously, would be more because of Chyawanprash. So Honey, what has happened during the year? What are we seeing as market share gains continuing for us? Any plans on new launches, if you could give us something?
Yes. Honey is doing exceedingly well. We've been able to gain the entire lost ground that we lost at the time. Today we are back into the market growth rate. Overall year's growth should be geared at around 20% as far as Honey is concerned. So -- and we've launched a new squeezy pack, which has also done reasonably well. So Honey we are back on track completely. Sanifresh also [ appears ] to do well. And in the current season, Glucose is also doing reasonably well. The Health Supplement portfolio along with OTC portfolio, all of them are doing reasonably well for us.But that being said, in the current quarter because of the very high base of Honey last year, we saw single-digit growth rate in Honey. That is on account of a little bit competitive pressure from smaller players like Apis and Hitkari. But we are mindful of that, and we are taking steps tactically through consumers and trade promotion to counter that.
However, having said that, Chyawanprash did very well in the quarter and brought the growth of Health Supplements category to a good level.
Next question is from the line of Prasad Deshmukh from Bank of America.
Just a couple of questions. Firstly, in the international business, what is your plan to revive growth in -- mainly in the Middle East and also in the Namaste part of the portfolio?
Right. So I think that will be a little bit of concern. There are definitely macroeconomic headwinds and geopolitical headwinds that we got to face, and it's been a long time that we've been facing that. I think there should be another 1 quarter of pain that we see, which will be the first quarter of current fiscal year. From next quarter onwards, we should see the growth revival because we lap over the high base there, and we will see the growth revival.Now as far as fundamentals are concerned, there is a definite picture in the Middle East. We see most of the categories in the Personal Care space that we operate, which are declining the double-digits. That being said, our market share gains across the categories of shampoo, hair oil, toothpaste, continue to gain traction, and we've increased market share by 2% to 3% in the MENA region.So I think Middle East should be back on the growth path. High single-digit growth for us in second quarter onwards. But we don't see any abatement in terms of the macroeconomic headwinds in the Middle East. Do we see a category revival? The answer is no, but I think based on our innovations and investments in India, we will continue to steer the course on innovation and media investments, and the growth path will start. Inherently, the business is exceedingly profitable and the largest on our business, and our brands are household names in the Middle East.As far as the Namaste business is concerned, we expect the North America business to trend at single digits but all at growth path, unlike last year where we -- as we declined there. But I think we should [ chalk ] back a growth path there. There are category headwinds in terms of chemical and relaxer category declining double digits, and we are the major players in the relaxer category. We've launched a lot of new products in the Natural segment. Early days yet to see the -- or to comment or make a judgment on how the new products in Namaste are actually doing.So North America domestic business, we expect a low single-digit growth rate in the hard currency. In other market of Subsahara, which is where the real price of Namaste products are there, we will continue to grow at double digit. And if the currencies do not devalue there, we will see the translation gains also coming in if we lap over the currencies. That is as far as Namaste. The overall Namaste business should grow at a single-digit, also maintaining the margins -- operating margins there.
Okay. And second question on -- you mentioned about power brands being extended to more and more part of the portfolio. But does this mean that there will be a defocus on some of the brands which probably may not be having too much of scalability potential? Are the power brands like a separate budget for you?
No. As you see, at Dabur we have a very diversified portfolio. So you also actually prioritize on where you put the money and the limited amount of resources. So within the resources available to the company, we are to prioritize. So therefore, power brands are the ones where we see the maximum potential and the headroom for growth and low competitive intensity. So we are actually -- those are the kind of power brands which will scale up, scale up to a level of maybe INR 1,000-odd-crore level so that we can leverage those brands [ and have the results ]. But we should not be not focusing on the other part of the portfolio. When I say focus on these parts, that means just proportionate investment will be going behind it. We'll be substituting the lower brands under the power brand architecture and extending them so that we could scale them up. For example, our Hair Care business, it is a INR 1,200 crore business, got the potential of scaling up to around INR 5,000-odd crores. So how do we scale that? This will be scaled up through Amla franchise. That is the power brand that we have. For example, we have a Real franchise. Rather than switching the money around VOLO, Koolers, et cetera, we will focus all our energy behind Real and try to grow Real beyond INR 1,000 crores to a level of maybe INR 2,000 crores, INR 3,000 crores because it operates in the category of around INR 10,000 crores [indiscernible]. And with the huge potential and equity of the brand, which hasn't been yet harnessed and leveraged.So I hope I've been able to answer the question. That is the meaning that we'll defocus on Home Care or Skin Care with other brands there in the portfolio. That investments will be in line with what the P&L of the brand can actually afford. There'll be no disproportionately high investments there.
Got it. Got it. Just one last question then. What was the growth in modern retail channel in Q4? And any update on your partnership with Amazon?
The modern trade for us is growing at a rate of around 19% broadly, which was much ahead of us. And modern trade is also going to be a tough area going forward because we think this is a window into the GT and also incubator for all of the NPDs that we will want to rule out eventually. So -- and e-commerce, the business has grown overall. As you see the full fiscal year last year, we've grown by around 100% in e-commerce, albeit on a lower base. But then the growth has been tremendous. And next year also, we're taking a very ambitious target, and we want to drive this growth. And to augment this, we've also inducted a vertical head for e-commerce who will be working as a P&L head to drive that category growth next year. We -- last year, in the beginning, we started off with e-commerce being 0.8% of the business. It already does 1.2%; next year -- 1.4%. And next year, we also predicted it to go up to around 2.2% to 2.3% of the overall turnover. And it will also be an incubator for a lot of the NPDs that we'll be rolling out exclusively for the e-commerce.Amazon happens to be our largest partner in the e-commerce among all the customers that we interact with, all the platforms. Amazon is #1 followed by bigbasket and Paytm, et cetera. In the last quarter, we had a little issue on Paytm because they stopped giving freebies and cashback on their platform. That's why you see growth north 90% in e-commerce, but in the range of 60-odd percent in the last quarter.
The next question is from the line of Sameer Gupta from India Infoline.
This is Percy here. So first, a couple of high-end questions I wanted to ask. You mentioned that the Foods sales were up 6%, but in primary terms, it was minus 6%, which means the inventory pipeline went up. So what was the reason for that? That is the first one. And secondly, if you could just give the rupees crore amount for the ESOP cost, which is embedded in the staff costs for this quarter, the full year FY '19. And also what do you think it could be in FY '20?
All right. Let me -- I'll seek Lalit's help on a couple on the second part of your question. I think the first part of the question is Foods. The plus 6% growth that I talked about was the Nielsen data of the tertiary growth. So Nielsen indicates the growth of around plus 6% for Real, but the category declined at around minus 2%. So therefore, there is a market share gain there. So that's the tertiary figure.As far as other figure, which was a primary sale invoicing figure, is concerned, there we have a decline of around minus 5.9% on the Foods portfolio for us. So there's always a gap between what the primary sales are and what the tertiary sales are, and that's the gap between the Nielsen. But I think what is more important here is to ensure that there is the brand and great help a lot. And that's indicated through market share gain. And we've seen around 450 basis points got added to our market share from last year same time. So we got a 56% market share, and that's what we've gained. So that's the answer. I hope I was able to answer your question. Yes. The second part, I think whatever I can't answer, Lalit, you can help me with it. So for the ESOP, the total amount for the year is around INR 75-odd -- INR 77 crores and for the quarter is around INR 40 crores.
Yes. So 2 aspects of it. Just to clarify, the incremental impact in the quarter, what Mohit is saying, is around INR 40 crores for quarter 4 and around INR 74 crores for the full year. However, if I were to just look at the last year and all impact after eliminating that, that is still approximately INR 77 crores. So therefore, if you can see, it's almost got double impact on account of the reversal that we had.
No, I'm not very clear on this. So INR 77 crores is the total ESOP cost in FY '19. Is that what I should understand?
Yes. Yes. Just to further add on, on what Mr. Malik said, total ESOP cost this year is INR 77.4 crores. Last year, it was INR 3.5 crores. And hence, the incremental is ...
INR 73.8 crores.
INR 73.8 crores.
Right? Because what happened in last year similar, it is around INR 77 crores, around INR 77 crores going forward.
Okay. Next year also INR 77 crores? And Q4 was INR 40 crores, you said?
Q4, the differential cost was 40 -- the incremental cost was INR 40 crores, incremental cost. Can I just focus? Let me just clarify. In the year, financial year '17/'18, we'd reversed INR 40 crores of ESOP. Therefore, the ESOP amount was much lower. In the current year, in view of the new scheme, the total annual ESOP impact is INR 77 crores, which happens to be only INR 3.5 crores in the last year, which is financial year '17/'18. So therefore, the net incremental that got impacted in this year is around INR 73.8 crores. Moving forward, it will be at the same level or maybe slightly lower because of the amortization basis that has been provided as per the standards.
Understood. Understood. Mohit, next question is that when we had this analyst meet, I think, about 8, 9 months back, you had given a very nice presentation with a lot of sort of action points that were to be carried out over the next several months and quarters. So if you can just give us a quick update on what has happened on what you had set out to do as far as your journey is concerned. What action have you taken? Which ones are pending? And among the actions which you have taken, how has been the response for them?
Right. I think that's a pretty long question. I'll try to give a short answer to this long description, Percy, so I'll try my best. But I think we should have an analyst meet once again to address all the questions that Percy is asking. What I'll do is I have to give you a succinct summary of the same.So I think first of all, I think that's one category. As I've told you that Dabur's got a very diversified portfolio and we are very scattered. So therefore, we want to consolidate this entire portfolio in the power brand architecture to consolidate sales, to consolidate our initiatives and endeavors and also to focus energy to the company behind the select 8 brands. So that architecture is already in place.Now coming to the investments to be made. We said that we will funnel all the investments behind these 8 brands. Most of the investments because they contribute around 75%, 80% of our turnover. So we funnel the investments, and we said that we will do that. That has already happened. Category architecture has already happened.Third was the demand fulfillment. We had to change or reconfigure the way we were planning on the demand, which is all about media expenditures. Earlier, we used to follow an approach of PPRP with the cost for GRP, whatever we used to get cheaper. Eyeballs, eyeballs, which was the basis of our planning, and wherever we were getting cheaper, we definitely were buying it. Now we are putting our money where our mouth is. So we selected -- out of 200 channels, we sliced the channels to around 50 in terms of number of programs. We would reduce the number of programs. So we are being more impactful by, as again, just media buy, which is actually reflecting in our market share gains in all the categories where we are present, which is what you've seen whether it's Hair Care or it's Oral Care or Juices or Healthcare.Only in the areas that are nonfocus, which is Home Care and Skin Care, is where our market share losses are getting registered. But our growths are still 20% because we are investing there also. So this was the third part.The fourth part I talked about is go-to-market strategy. We said that we want to reduce the reliance on wholesale and, therefore, build infrastructure so that we can reach directly to the outlet. That's what's happened. As against to 1.2 million, this outlet reach, but we're planning to go -- we were able to go to 1.1 million. We could not do a 1.2 million. I think next year, going forward, we should be able to reach out to our 1.2 million target of direct [ reach ] it was GP. Then a fifth one is increasing the number of villages. So direct reach was more urban than reaching out to more number of villages was more rural reach. That also we embarked upon. And I think this is the longest journey. We find that around 66,000 villages in the total 600,000 villages in the country contribute to 50% of the FMCG business. So we want to eventually reach out to those 66,000 villages. So today, we are reaching out to 44,000 villages. There is a journey to bridge the gap from 44,000 to 66,000. Next year, we've taken a target to go to around 51,000 villages, for which we will be strengthening our super stockers and top stockers network. The work has already started, and we are moving towards that.The sixth element, if I remember them, if my memory serves right, is the strategy of regionalization in which we embarked upon a program called RISE, which was called regional insights and speed of execution. The regional insights meant that we will -- we have identified around 12 regional cohorts, and we are making those regional cohorts as a consumer demand in regional cohorts looking at India like a mini India same that Unilever has. So that is what we've embarked on. We've taken a test case of Northeast. This is where Tezpur, our manufacturing facility is. And therefore, there is some sort of a tax benefit also to sell in the same state -- in the same region where you're actually producing. So we said we've taken our test case and see if we can do something with RISE. We've seen a growth of around more than 25% coming in the Northeast wherein we built infrastructure, we built [indiscernible], we [indiscernible], we took local celebrities, we took local newspapers. And we remodeled that area with regional communication also which has given us great returns going forward.Now going forward in the next financial year, we are embarking on South India as the second case for RISE. South India for Dabur contributes to only 16% contribution to the overall business as against other FMCG companies that contributes to around 25% to 30%. So there's a huge gap we're doing order for [indiscernible] and what we are doing. So next is going forward, we are looking at South India. And what we've done in Northeast, we'll be replicating it in South India also, looking at regional strategies for South India. And we think there is a huge growth potential there. So that is as far as RISE is concerned.In line with RISE, we are now creating P&L for every cohort. So there will be a top line and a bottom line, and we make the area heads who are responsible for areas responsible for not just top line but also bottom line, be mindful of what the bottom line will be so that we are able to scale up the profitability in every region. There, our average gross margin around 50%, some were 45%, some were at 55%. So there's a headroom. This new analytics we've identified, and we'll be doing that.So pretty much I think I have been able to summarize on the go-to-market and on the brand area. The third is capability building. We have recruited a lot of resources. First, Healthcare was our focus. So therefore, we recruited a Vice President Healthcare in the company or region, thus we recruited a healthcare OTC head for us. We recruited an e-commerce head. We recruited a parlor head. So therefore, we've injected a lot of capability, which is a little higher in the company to drive healthcare and vertical.Then in the Healthcare, we will scale up some 3 brands I told you we have in the pipe, and I just related the results to you. Lal Tail and Honitus and Pudin Hara, all 3 have been giving us great results. So I think we are on the right path fundamentally and structurally, and we will keep steering the course on our intent and not get really afflicted by one-off results not being in our favor.So I think we are pretty much on the right track, and that's the way we will steer the business going forward. And hopefully, we'll be able to organize an analyst meet where we can catch up with you one-on-one.
The next question is from the line of Aditya Soman from Goldman Sachs.
Just 2 questions from my end. Firstly, on the juices business. Can you -- or the Foods business. Can you break out between pricing and volume? And actually, just give us a better context on how the promotional activity played out.
The volume decline was around 4% as compared to the value decline of around 6%.
All right. And the rest was -- so the rest was pricing. So there's no impact of any adverse mix or anything of that?
Not really.
All right. And secondly, in terms of margins for -- you mentioned that e-commerce and more on retail are growing much faster. Is there a difference in the margin profile there and also on working capital?
Well, I think internal margin profile e-commerce and modern trades are actually accretive to the business because we try to reach out to the modern trade directly, and that's what we are embarking on going forward. So we are trying to eliminate the intermediary between the company and the modern trade big chains and trying to deliver them directly, that's the supply chain that we are bringing about. But as such, also, if you include the intermediary in between our margins are accretive because what you sell in modern trade in large packs invariably have a higher margin as compared to the LUPs that go through the GT. And also on e-commerce. E-commerce, all the platforms focus on higher ASPs, which is average selling price, it can be higher. So they are not interested in selling lower-ASP products because the cost of trade is very high for e-commerce. So therefore, there, also, the profitability is fairly high as compared to our regular business.
Understand. And then following up. Then on working capital, are there any meaningful differences or nothing? What do you think?
There are no major differences on working capital.
I mean working capital is actually favorable because you are directly going out there and selling it. And once you sell the goods, it becomes their property and working capital actually benefits us positively there also. So -- but in some modern trade chains, I think the creditors, we are higher. So...
No it's not very significant there.
Right.
Understand. And lastly on that. All the sales to the modern trade channel, are they done directly or do you go through intermediaries?
No. Today go through intermediary, the intent is to go directly for the major ones. You can't supply all the modern trade customers directly. But as we scale up the business, we'll become big customers, we are trying to go direct with them. So we are in the process of negotiating margins for us to supply. And it's meaningful for us to supply them with full container loads or full truckloads directly. Where the customers are subscale, we are there, we go through a stockist.
The next question is from the line of Amit Sinha from Macquarie.
My question is again on the Foods segment. And if I look at buying this quarter, if I look at the last 2 years' performance, the segment has underperformed the other segments. So the question is -- and you have gained market share. So you have done specifically well within the overall segment. So the question is for the overall category, are you seeing competition from dairy-based RTDs? And is the overall growth in the category supposed to come back to double digit in the near term?
Yes. I think your question is right. While the competitive intensity is only hotting up in the category, and we are getting aggressive and we are gaining market share, you see at the post on the strategy of getting market share in the beverage. But dairy is definitely giving us competition. And the growth rates are also higher in milk-based and yogurt-based products because the base is very small there. So we are trying to recalibrate and rethink our strategy on where to go and where to focus. And, but the margins are rarely dilutive in dairy, and it requires a back-end capability also. So as of now, there is a reluctance, but we feel that there is enough headroom within the dairy category and the juices category also to take the business forward. There is almost a 56% market share. We are operating in a 1,600-crore category, the J&N category, which is juices and nectars. The moment you expand this pie and go to drinks also, where I think the real headroom is and where they could be up, realize we start operating in a category of around 6,000-odd crores. There is a overall pipe, you include the dairy also, it could be 10,000-odd crores. So I think we have enough headroom for us to go before we embark on dairy or anything like that. So I don't think there is a limitation in terms of the headroom or some of the competitive intensity that the future looks bleak for us. I think it's all contingent on the kind of innovation that you launch, and that's what we've done. We launched an entire Masala range, which is doing exceedingly well for us. Now we are extending it. And going forward, also, you will see a step-up in the innovation in the juice category, which will fuel the growth within the J&N space and J&N drink space.
Sure. The second one is on your overall strategy. And when I look at your overall market share gains strategy, it is very, very visible and very encouraging. However, at the same time, we have also seen Dabur being very aggressive on the promotions and very active in the lower price point SKUs. So the question is does this strategy also put the margins under pressure at least in the near term? And while you have answered a question related to margin that you will protect the margin, but my question is that can we see a margin expansion in this kind of an aggressive strategy, which you have undertaken for market share gains?
We don't have any intent of picking up the margins forward. I think we are at a good level of margin and we will protect the margins. We also have a stable margin actually, going forward. With that, as far as strategy is concerned, this is a two-pronged strategy. The growth is going to come from premiumization as I told you. Premiumization is value-accretive and part of the utilization on the volume of business that you can get out of it. So whilst there will be margins, the volume of business will not be there, whereas LUP, which is bottom of the belly, which is scalable. So there, also, we will have to embark upon. You can't have one strategy and not have the other. So I think one is a volume driver, another is a profit driver. Both have to go hand-in-hand together. So there will be premiumization on Dabur. Now also, there will be LUP strategy on Dabur Amla which is going to be a INR 10 price point or a INR 5 price point or a sachet price point. At one end in Shampoo, you will be investing there in the bottle and the other end you'll be investing behind the sachet also, which is the value of the market. At one end, you will get the volume. On other end, you will get the profitability. And you'll drive innovation and projection and more premiumization and connect with the millennium through e-commerce. So it has to be hand-in-hand. I don't think this will put pressure on our margins going forward. If you don't do it and it's skewed towards one end and only on bottom of the belly, then it can put pressure. But if the volume and the scale of business goes up, it will only leverage the cost, and therefore, it will slow down. And operating margin can also be maintained by way of having a scale through LUP and volume also.
Next question is from the line of Arnab Mitra from Crédit Suisse.
I had just 1 question. This year, in the 4 quarters, we have seen a lot of volatility in the volume growth at the domestic level. So I wanted to understand is this volatility largely due to base effects in different quarters? Or have you actually seen substantial acceleration and deceleration in the alternate quarters this year? And linked to that question is, as you go ahead, do you see this volatility kind of come down. And has there been any trade pipeline-related reasons for this volatility to be there?
No Arnad, there -- our businesses are really very diversified. And there are seasonal variations during the whole year. So I think season plays a very big role in our business. For example, Chyawanprash business, healthcare business is pretty much skewed towards the winter. Juice business is skewed towards the summer. And there are some gift packs, which is skewed towards the festive season. And the calendars keep varying and the seasonality keeps varying and that's how the volume actually surges or it actually takes a dip. But I think fundamentally, there is no issue on the volume business. Season has been built in the pipeline at all. We are very mindful of the idea to be maintained at the trade level. We operate at a 15% to 20% -- 15 to 20 days of inventory of a stock level, that's where we guys are. Our intent is to actually stuck on the pipelines going forward. So that if you see, our inventory levels have also gone down from last year to this year. And we also embarked on a supply chain product in which we are looking at a range availability at the distributor level, which would bring down the pipeline to the distributor level also, which we corrected our poor level inventory. Now going forward we will correct our stock level inventory carefully so that it doesn't impact the business so much.
Right. Okay. And the second question was on hair oils because you mentioned this was one of your priorities for next year and one of the major priorities. So this market share gain that you have done this year overall in hair oils, how -- what has actually been the sources of this? Has it been more driven by your approach on coconut oil or it's been more driven by a line of other oils? And in terms of next year, I mean, how do you want to kind of grow this category for you?
Yes. So to answer, hair oil business is definitely a potential. As I told you, we are only 1,200 crores in the category size, goes up to around 10,000-odd crores. And we see a huge headroom for growth here. There are 1 or 2 single players in every subsegment here. So therefore, there is not a potential in the category. Now the strategies that we have put in place last year is, first of all, with the revival of Dabur Amla franchise. We've got more competitive in terms of media, in terms of our communication, in terms of our go-to-market. But some structural changes in terms of modernization, which are time-consuming, which we embarked upon but which hasn't seen the light of the day, will be seen going forward next year. We have revamped our complete packaging of Sarso Amla and Brahmi Amla, which are our flanker brand. So our strategy of building more surround that pillar brand is kind of repaying dividends going forward in the future. So we've got most in terms of flanker brands like Brahmi and Sarso and we've seen great volume growth coming from there. Dabur Amla also is back on growth path, as we see, so expensive brand and we see a growth path back on Dabur Amla also.In terms of coconut oils, our industry will be launching Anmol Jasmine that's doing reasonably well. And next will be revival of Dabur Vatika, which is what we'll embark on going forward next year.
And just on the market share, so within Amla, also have you gained market share? Or is this 70 bps more driven by the non -- I mean the coconut oil side?
No. In the overall Perfumed Hair Oil segment, we've actually gained the market share. So having the Amla franchise, Amla along with [ Brahmi interest ] so we have the ability to gain market share despite weakening at a premium to our competitors. And a premium of 50%, no less there.
The next question is from the line of Harit Kapoor from Investec.
Just 3 questions. Firstly, on the competitive intensity or promotional intensity, you spoke about, it seems like Q4 has been even higher than Q3. So just wanted to understand specifically where has the promotional intensity, which category has it stepped up?
So promotional intensity has been there -- across some segments. I'll name some of them. First of all is fruit juices. I think in juices the competitive intensity has really gone up with a lot of competition coming up, along with dairy and also yogurt-based drinks and there would tend to be price points are actually hotting up. That is one area. Second is on Amla, competitive intensity on the hair oils, the competitive intensity remains what it is. In oral care, the competitive intensity is kind of abating. We saw earlier a lot of freebies happening by our competitor, but we see that in oral care competitive intensity is coming down. In healthcare, we don't see much of competitive intensity. In home care and skin care, there is a fair bit of competitive intensity in home care by lead players and in skin care by small economy players which are taking away our market share. In Healthcare business, the only area that we've seen a step-up of competitive intensity is in the case of Honey, with small economy players who are [ now swimming ] with the very small geographic players, so I won't even call it a competitive intensity. I think very small, regional players coming and discounting the products and chipping away market share. But we have to be a circumspect operator and quickly through tactical promotions, tackle that issue so that our market share low decline even in [ buckets ]. So that's the overall picture. But I don't think it's really gone up to an extent that we can't combat it.
Very clear. The second thing was on the rural/urban kind of outlook. Please, could you just give us a sense on how much probably in terms of -- even correlatively how much rural would have slowed probably for the last couple of quarters for you and how you're seeing things going forward on that.
We see in the current quarter, we see a growth of around 7.8% coming out of rural, and urban is growing at around 7%. Now the gap between urban and rural has dropped -- come down. Earlier we saw a gap of around [ 30% ] higher in rural growth as compared to urban growth. Now it has come down to around 10-odd percentage level. So we see pressure, but that being said, the rural is still fighting at a much higher pace as compared to urban. So once the government stimulus actually flows in and the sentiment actually improves post-election, that's what we're hoping, and we've got a great infrastructure put in place for rural and we are able to launch accessible price points which can right our infrastructure. We think the rural will give us great benefits going forward. So we have to be optimistic. Our rural alliances more as compared to our competitors are -- 45% of our sales happens from the rural. So we think rural resurgence will happen behind all the promises in the [indiscernible] by all direction. So there will be rural money. There will be money flowing into rural India, and there will be demand resurgence happening there at some level.
Very clear. Very clear. Last thing was on the margin. So when you speak about not -- looking to maintain margins, you're speaking more about the India business, right? Because I assume that there is some scope to improve the international margin given the weakness this year.
Right. So international business is more at pace with the geopolitical and macroeconomic headwinds like Lalit mentioned previously. There are currency depreciations which hit us from all quarters and currency depreciation then hits you, both at the transaction level and also at the translation level. At the transaction level, when you import the goods there, it becomes more expensive because you buy it in a dollar-denominated currency, and therefore, it puts a pressure on your bottom line. And this you may not be able to pass on to the consumers. So that pressure will be there. That being said, there is a category pressure also to top it all, therefore, we've been giving a lot of -- a trade scheme. But we look at improvement -- small improvement on the [indiscernible] of the margins going forward. The situation improves after this quarter. So we expect maintenance of margins and a growth rate in margins also in line with the top line.
Thank you very much. The next question is from the line of Rohan Gandhi from Anand Rathi.
So you mentioned the growth of modern trade channel [indiscernible], right?
Right. Correct. 1-9.
Thank you very much. The next question is from the line of Tejash Shah from Spark Capital.
Sir, you seem very clear on the margin outlook. Basically, you want to keep it static to a revised growth. So with this kind of goal seek, what sort of growth trajectory are you targeting with it?
Sir, we are looking at a high single-digit volume growth, and to offset inflation, we are expecting inflation in the range of around 2% to 3%. So [indiscernible] 2% to 3%. Price increase and a high single-digit volume growth is what the outlook. For the -- that's our target for next year going forward, for the India [ CCG ].
Sure. So second, when I look at your performance and your commentary where you are attributing a lot of this weakness to seasonality factors also. So is it that in this quarter as we speak that the demand -- the underlying demand momentum is not as that is deducted from the number, it is right. Or is it a combination of both in fourth quarter number?
No. I think what you say is right. We see a little bit of resurgence in the demand because we had a severe winter, and after the severe winter, we expect a normal sort of a summer, if not very severe. And the monsoon is also going to be near normal as the data speaks as [indiscernible] growth has been good. So we are actually seeing 1 month has already elapsed for the quarter and we see a little bit of a revival in the demand in the month of April. And hopefully it can continue going forward into May and June. But we have a high base of last year in which we registered a 21%-odd growth. So we are mindful of that. So it's a tall task to have a very high single-digit volume growth also on that base of around 21%. But I think going forward next quarter, hopefully, things would get better. Yes.
Lastly, in the MPD pipeline, are you picking a call off the coming category created also in some of these new products? Or as of now, will be mostly around renovations and perhaps will at best will clear all of challenges in some of the established categories?
Tajesh, this is a two-pronged strategy. There is a strategy for the bottom of the pyramid and value the market and there is a strategy at the premium end. At the premium end, we will play a role of a category creator, and that's where we will launch formats, which are perhaps new to India. And we've already done that in the particular space in international business. So we have a learning from there. And we can bring those products to the e-commerce platform and see if they have any traction then we can roll it out in the general market and in the mainstream. At the bottom, we will play a UP game, making the price points more accessible to the consumer. The role of innovation there will be low at the bottom of the market, but the role of category creation will be higher at the premium end of the market. So both ways.
Thank you very much. Ladies and gentlemen, that was the last question. As there are no further questions, I would now like to hand the floor over to Mrs. Gagan Ahluwalia for closing remarks. Over to you, ma'am.
Thank you. Thanks for your participation in this conference call. A webcast recording of this call and transcript will be available on our website. We will be happy to address your questions if any. Thank you, and have a nice evening.