'Rural demand still subdued in festive season'

In an exclusive interaction with DH’s Shakshi Jain, Malhotra said he anticipates a notable improvement in consumption in the January–March quarter.
Last Updated : 27 November 2023, 19:50 IST
Last Updated : 27 November 2023, 19:50 IST

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Consumption demand in rural India has failed to match pre-Covid levels so far, even in the ongoing festive season, Dabur India Ltd Chief Executive Officer Mohit Malhotra said.

In an exclusive interaction with DH’s Shakshi Jain, Malhotra said he anticipates a notable improvement in consumption in the January–March quarter. The fast-moving consumer goods major is fairly confident about closing FY24 with high single-digit year-on-year growth, he said. Malhotra spoke on expansion plans in South India and added that the company aims to boost premiumization by introducing products only available on e-commerce platforms. Edited excerpts: 

How has festive consumption demand been so far?

At Dabur, we feel the festive season has been better compared to last year—in e-commerce, open-format outlets, and Tier I, II, and III cities. However, rural India still has to recover a bit. We are still finding liquidity issues happening in rural areas, despite the festive season kicking in. Minimum support price rates have gone up, so it should recover. And the trend long-term is in recovery. If you look at a couple of quarters back, volume growth in rural India used to be negative. From negative, it became point four; from point four, it has become six or seven. The trajectory is upward. But 7% is not good enough compared to pre-Covid levels. Rural areas had double-digit growth, and that was driving the entire FMCG industry. Now, urban India, e-commerce, and modern trade are driving the FMCG sector. So we would want a quicker recovery in rural markets.

When do you anticipate a significant recovery in rural consumption demand?

Quarter four (January–March) onwards, we should see a good impact because it’s a low base. We see a negative base continuing for a couple of quarters. The fourth quarter should be pretty positive for the industry as a whole. While the season depends on the winter, how it actually fares will determine demand. In healthcare, the season matters quite a bit. But I think quarter four should see a recovery, and this recovery will keep happening as the elections happen, etc.

Elaborate on Dabur’s expansion plans for southern India.

In south India, our percentage contribution to business is very low, barely 20%, compared to 30–35% for some other FMCG companies. So south-Indian scaling has been on our minds for a while. I think it’s important to be present closer to the market where the captive demand is. We are contemplating setting up a manufacturing unit. These are early plans; we haven’t zeroed in on any factory. It might take us a couple of years to set up a unit in south India. But besides that, we want to scale up our food, drink, and healthcare businesses in south India. We have also appointed a consultant to help us go from 20% to around 30%. We have a couple of facilities, brownfield or greenfield, a couple of options, which we may consider as and when the plans are corporatised.

Based on your business so far, are you on track to achieve the financial targets set for this financial year?

As far as targets are concerned, we are on the way to achieving the numbers. We will be registering high single-digit growth in terms of the top line. Even in profitability terms, we will be upside in terms of operating margin gain because gross margins have gone up. A part of the gross margin gain is coming down to the operating margin, and some of that we have invested in advertising to shore up demand because the demand situation is not really what we would have expected in rural India.

The trend of premiumization is on the rise in the FMCG industry. What are your plans on that front?

Our e-commerce contribution is 10% of the business. All of that is coming on the back of premiumization. So category after category, we are trying to premiumize. For example, in shampoos, we have introduced sulphate-free shampoos and the Vatika Select range, which are not available in general trade. It is only available in the e-commerce setting for us. So all efforts towards premiumization are actually happening, brand after brand.

We’re only present online with these brands because that is where the modern trade consumer comes in. That is where the affordability is, and that is where you are giving the handling charges. So it’s getting from e-commerce to modern trade; it’s a gradual, staggered flow that will happen.

What is your view on the Religare and Burman family tussle?

Dabur is not connected. What is happening in Religare is completely isolated. The Burman family are promoters. So we give dividends to the promoters, and the promoters invest that capital into different companies and their own interests. Religare is a part of that. The chief executive and Dabur India have nothing to do with that. It is almost like a watertight compartment. Yes, they are the promoters, and they happen to hold the chairman position, so some impact on the sentiment, whether from the stock market or the consumer, is bound to happen. But I think it’s momentary. That should pass.

Published 27 November 2023, 19:50 IST

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