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Published on 2/07/2019 10:41:01 AM | Source: HT Media

Revival in demand will depend on budget, monsoon: Dabur`s Mohit Malhotra

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NEW DELHI: Fast-moving consumer goods companies are hoping that a good monsoon will help stimulate demand in India’s hinterland. At Dabur India Ltd, known for its Chyawanprash, Vatika hair oil and Real fruit juices, the mood is no different. Mohit Malhotra, the newly appointed chief executive, said the flagging consumer demand in rural and urban markets is a growing cause for concern. Edited excerpts from an interview:

There’s been a shortfall in rains so far. How does that look for your business?

We should wait, for maybe, another 10 to 15 days, to see how monsoons actually pan out. But pre-monsoon there was a shortfall and last year also the crop wasn’t great.

We are keeping our fingers crossed. If the monsoon is good then demand should revive. If the monsoon is patchy then there could be a concern. But if the monsoon is all right then I think the second half of the year should be reasonably okay. It also depends on what the budget brings to the table for the rural consumer. So, the budget and the monsoons are the two variables.

If you compare sequentially, the industry growth rates are actually going down because of rural distress. (Although April–June this year compared to April-June last year, is better). But October–December, January-March, April-June there is a sequential drop in industry growth rates, FMCG growth rates and staples growth rates. Even in the categories where we are present, we are seeing a downswing. This is both in urban and rural. But if you compare it year-on-year, it is a tad better. That’s the green shoot we are seeing.

Is the problem in the rural markets systemic?

I don’t think it is a systemic issue. I think it is a temporary issue. One good thing that has happened is that you have got the same government back in power so the policies will remain consistent. Kisan Vikas Yojana has got broad-based—so the transmission is going to be much better as we go along. Prior to the elections—for three months—the government also stops implementing (policies). So the spending also gets a little muted. It was a pretty protracted period of elections this time, so everything came to a standstill, which also impacted the consumer.

Is the consumer downtrading—buying cheaper products or smaller packs?

Downtrading is happening big time in urban markets. In urban, now there are also different sects. There is e-commerce, modern trade, the cash-and-carry ecosystem and then there is general trade or GT (kirana stores). So the GT ecosystem is seeing a lot of pressure from e-commerce, modern trade and cash-and-carry, while they are also facing a liquidity crunch. In general trade, the income is generally low, the sentiment is also low and the capacity to pay is also a little bit muted, therefore, the downtrading.

If you see oral care as a category—every company has products now available at a ₹10 price point, which used to be a ₹15 or ₹20 price point earlier. Same is the case for hair oils. The ₹10 price point is becoming very big. That is what is going to increase our penetration in the rural markets, to reach out to more consumers and also help us in direct expansion in urban India.

Which categories are growing the fastest for you?

Healthcare is our mainstay. We have got a strategy where we want to scale up some of our power brands—Honitus, Hajmola, Pudin Hara and Lal Tail. We are trying to contemporise them. Honitus, which used to be cough syrup, is now available in a small sachet. We are gradually trying to move these niche healthcare products into more mainstream, which is where the business growth will be very high for us.

Will Dabur look at any acquisition in India?

One is open to acquisitions. We have got a war chest of around ₹3,000-odd crore. And, we have kept this for India only. So, anything which is a strategic fit for the company...and, as we speak, we are doing due diligence on some companies. There are several interesting companies available. Actually, what has happened is that because of GST (goods and services tax) compliance, a lot of these small companies are under tremendous pressure.

Earlier, they used to evade GST and, therefore, they used to thrive. But now, thriving has become a survival issue because of compliance coming in and with all the e-way bills, etc., coming in they are under tremendous pressure. Because of the pressure, they are willing to let go. We are open to acquisitions in healthcare, personal care and food as categories.