Dabur India Limited (DABUR) Q3 FY23 Earnings Concall Transcript

Dabur India Limited (NSE:DABUR) Q3 FY23 Earnings Concall dated Feb. 02, 2023.

Corporate Participants:

Gagan Ahluwalia — Vice President – Corporate Affairs

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Ankush Jain — Chief Financial Officer

Analysts:

Abneesh Roy — Nuvama Institutional Equities — Analyst

Avi Mehta — Macquarie — Analyst

Arnab Mitra — Goldman Sachs — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Prakash Kapadia — Anived — Analyst

Abhijeet Kundu — Antique Stock Broking Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q3 Results Investors Conference Call of Dabur India Limited. [Operator Instructions]

I now hand the conference over to Ms. Gagan Ahluwalia. Thank you, and over to you ma’am.

Gagan Ahluwalia — Vice President – Corporate Affairs

Thank you, Aman. Good afternoon, ladies and gentlemen. On behalf of the management of Dabur India Limited, I welcome you to this conference call pertaining to results for the quarter and nine months ended 31st December 2022.

Present here with me are Mr. Mohit Malhotra, Chief Executive Officer, Dabur India Limited; Mr. Ankush Jain, Chief Financial Officer; Mr. N. Krishnan, DGM, Finance; Mr. [Indecipherable] Sharma, DGM, Corporate Affairs.

We will start with an overview of the Company’s performance by Mr. Mohit Malhotra, followed by a Q&A session. Over to you, Mohit.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Thank you, ma’am. Good afternoon, ladies, and gentlemen. Wishing you all a great 2023. Thank you for joining us today for the results call of quarter three financial year ’23.

The operating environment remained challenging during the quarter. Rural markets continued to face a slowdown on account of high inflation, uneven distribution of monsoon, and down-trading by consumers. The quarter was further impacted due to the delayed onset of winters, impacting our winter-centric and immunity building portfolio. Having said that, the new age channels performed very well, and some green-shoots are visible in the rural markets, indicating early revival in demand.

In this context, Dabur consolidated revenue crossed INR3,000 crore mark for the first time in the quarter, and registered a constant-currency growth of 5.7%. India business grew by 3.3% and international business registered a growth of 14% in constant-currency. The three-year CAGR for revenue of India business is at around 10% with near double-digit CAGR in healthcare and HPC and mid-teen CAGR in F&B business. Our gross margins contracted by 280 bps in consol business due to material inflation and currency headwinds and led to the operating margin declining by 129 bps in consol and only 26 bps in standalone. The margin contraction is sequentially lower than the previous quarter due to moderation in material price inflation.

In terms of categories, food and beverage business posted a growth of 6.4%. The beverage business continues to be on a strong trajectory, despite being impacted by early onset of festive season. We outperformed the industry significantly with our market shares in J&N category increasing by 250 basis points. Fruit drinks and milkshake portfolio reported a strong growth, and will exit the year with INR200 crore revenue. The food business also performed well with a growth of 35%. This will be further bolstered by the Badshah acquisition, which will be consolidated quarter four onwards.

HPC portfolio recorded a 2.2% growth, despite the key categories of hair oils and toothpaste registering a volume decline on account of downgrading by consumers to LUP packs. Toothpaste portfolio grew by 3.2% during the quarter, and our market share in toothpaste segment continues to increase led by Dabur Red. We have become the Number 2 player in the oral care segment with our market share in the category now at highest ever mark of 15.8%, 80 bps ahead of the erstwhile Number 2 player.

Home care reported a growth of 18% driven by robust double-digit growth across Odonil, Odomos, and Sanifresh franchises. Odonil recorded an increase of 540 bps in market share in aerosol segment, 410 bps in the gel category. Odomos increased its market share by 220 bps. Shampoos recorded a 4% growth on a high base of 21% growth, and saw its market share increasing by 40 bps. Hair oils were impacted by the category decline of 4.5%, but our market share witnessed an increase of 70 bps to touch the highest ever level of 16.2%.

Healthcare portfolio has returned to a positive trajectory after lapping over the high basis of last two years of COVID. On a three-year CAGR basis, healthcare continues to trend at a near double-digit with market share gains across health supplement portfolio. Digestive category saw a strong growth of 11.2% on back of robust performance of our Hajmola franchise, driven by successful launches of Limcola and Chatcola variants. OTC portfolio recorded a double-digit growth with a strong performance of Lal Tail, Honitus, and Shilajit. Ethical portfolio ex-COVID contextual products registered a growth of 7%.

Among channels, e-commerce was the standout performer with 40% growth and now contributes to around 9% of our total revenues. MT also saw a double-digit growth during the quarter. International business recorded a constant-currency growth of 14%, while Turkey and Egypt recorded exceptional constant-currency growth, INR growths were impacted due to currency devaluations in these markets. Sub-Sahara Africa and SAARC business clocked strong growths too.

On a consolidated basis, despite the inflation and currency headwinds, we continue to drive our business aggressively and have gained market share across the portfolio. Going ahead, we expect the quantum of inflation to moderate, but commodity-specific nuances will continue to linger especially in the food and beverage basket which is seeing a pickup in inflation. We are seeing green shoots emerging in the rural markets, especially in the months of November and December.

The recently announced budget initiatives like 33% growth in infrastructure spending, increase in agri credit to INR20 lakh crore, setting up of Agriculture Accelerator Fund for startups, along with focus on job creation will augur well for the rural economy. Urban markets are also expected to improve driven by softening of inflation and buoyancy of new age channels has also improved consumer sentiments on the back of reduction in taxes for the Indian middle class. As for Dabur, we will continue to focus on gaining market shares, growing ahead of the industry on back of the strength of our power brands, distribution coverage expansion, cost optimization, and efficiency enhancement initiatives. In addition, we remain intensely focused on operational excellence and delivering consumer-centric innovation to expand the total addressable market.

With that, I bring my address to close, and open the Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Yeah, thanks for the opportunity. My first question is on the toothpaste business. So, when I see your growth in this quarter, maybe in the past few quarters, and compare it with the Number 1 toothpaste company, the gap is now very limited. So, earlier the gap appears to be much more higher, and the MD of that Number 1 toothpaste company in fact said that for the category now the natural growth will be either similar to the overall category, or might even be a bit slower because now it’s fairly large. So, when you compare these two, your growth versus the market leader and the comment that now it is fairly large, so it may not expand too much in the next one year, two year, what would be your comments to that?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Right. So, Abneesh, hi. So, far as oral care segment is concerned, if you look at the category growth, so category is declined by around 8%, and in 8% percent, 50% share happens to be the market leader, and I think significantly contributed a part of that decline. We have grown at around 3.2% in the toothpaste segment. And while the category has declined by around 8%, our three-year CAGR is in the terms of around 14%, 15%, we are the market leader in terms of the herbal segment, which is 30% of the overall market, and Dabur Red is continuously gaining share. I don’t know and I can’t comment upon the comments of some other person, but as far as we are concerned, we are seeing a steady growth coming in Dabur Red, a steady growth coming in Meswak, Babool got impacted in this quarter because of the rural decline, which is happening across the board especially in Central India where we were impacted by the deficit of rainfall, that was an exception. Our herbal toothpaste entry has been doing exceedingly well in the Southern markets. Our attempt of launching — relaunching our Dabur Red Gel is also doing very well. This year we should exit at around INR20 crores in the gel market.

If you slice and dice the entire oral care market, what we find is that consumers are down-trading at a very rapid pace to LUPs, and there is a grammage reduction also which is happening by all the key players and because of that, the gel market, which is a tad lower in terms of pricing as compared to the overall calcium carbonate market, that has started showing a lot of growth signs. So therefore, our gel entry, herbal gel entry is making so much of sense, and actually showing a lot of traction in the market. By the way, we’ve taken a celebrity called Deverakonda in South also for Dabur Herbal Gel, which is showing great signs of growth.

Our Red Toothpaste has increased market share by around 36 basis points. Meswak has also grown. And overall, we have become the Number 2 player in oral care now and replacing Unilever, Number 1 is the lead player and Number 2 is us now in toothpaste and tooth powder clubbed together as a segment. And even in toothpaste we are not far. So, we are steadily increasing our market share. While you’re right in terms of growth rate, the herbal segment may not be growing as fast, it’s already 30%, but consumer sees value as compared to a pure some carbonate toothpaste, and a toothpaste which has got calcium carbonate plus laung, pudina, tomar and 20 other extra ingredients, which also cost to consumer extra.

So, our Red Powder also, if you look at the CAGR of past three years it’s doing significantly better and now we are talking about supplementing Dabur Red on top of the calcium carbonate toothpaste who is the lead market segment, that’s also showing a lot of traction. I think we got our fundamentals in-place as far as oral care is concerned, not commenting too much on what the competitor has talked about. I think we are steadily gaining share market-by-market, and we are launching it market-by-market. We’re not looking at all-India launches so that ad pro spends is also significantly higher for us, but only that, yeah.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sure. Thanks. That’s useful. I was, in fact, comparing like-to-like because you see quarterly results, obviously, are the more important parameter because in Nielsen we have always seen that it can be a lag impact there, etc. So, coming back to the toothpaste versus tooth powder because you have said Number 2 player in dentifrice. My question is because of the rural slowdown and because of the down-trading we are seeing across the board, would the tooth powder segment for the industry and for you would it be higher versus, say, pre-COVID?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Not really. Almost about the same level in terms of tooth powder. So, the category is stagnant, while we guys are consistently gaining share in the category of tooth powders. So Red is taking share from whites, and which is what is the phenomena which is happening in toothpaste market also. It’s value-added tooth powder to a plain calcium carbonate tooth powder, so value-added tooth powders like Red will gain share, and that’s what we guys are doing, especially in the Hindi heartland and other places also, yeah. There is a 5% CAGR for us in tooth powder in a category, which is stagnant.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Right. Sir, my second question is on the winter impacted portfolio this quarter, obviously, it was negative. Jan month we have seen again extreme temperature. So, would you say that in Q4 you’ll recoup whatever you lost, say, 5%, 6% in terms of dip in skin and salon business, would that be recouped because we’re going to get three, four weeks of good demand, right, in terms of winter?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Absolutely. Abneesh, what you’re saying is absolutely right, Chyawanprash portfolio which got impacted during the season because winter being — December was the most summary winter month that you could ever have, so it was very high temperature this time in, I think, 22 years or 122 years that India has seen in terms of December, but that lag will get covered up in the month of January and we are seeing January, our Chyawanprash sales far better as compared to the previous months. But that said, there was a COVID impact last year in the month of January and therefore there was a higher sales of Chyawanprash.

So, as we speak, Chyawanprash is almost as good as last year, which shows great confidence to us that because the winter getting protracted, I think, that cover-up will easily happen in the winter-centric, and also with skin care. Our sales for lotions etc., are far better in the month of January is what we’ve seen.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Mohit, my question was also on the skin and salon, so there you would not see the COVID impact in the base. So, will that see a good growth in Q4?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yes, exactly. That’s what I said in lotions and creams and Gulabari, we are seeing a significant amount of traction happening in the month of January also, Abneesh.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sir, last question is on the — a lot of e-commerce and say quick commerce kind of products you’ve launched, say, in the last two years. In those, if you could tell us which are the ones where you have seen good success, the initial success, and maybe at some stage they could be taken to kirana? And some of which where you’re looking that now it is not working, so you may have to take a hard call on some of those products?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Right. So there are two parts to this question. One is the NPD part that you’ve asked me, and other is e-commerce part that you’ve asked me. Our e-commerce business is doing exceedingly well. Now, e-commerce is contributing around [Phonetic] 9% of the business and part of the business is steered by new product introductions because we are treating it as a cradle for innovation for us. We are launching the products, we are learning with our experience, changing the whole mix and then making it ready for the modern trade to happen.

So, a lot of NPDs that we rolled out on e-commerce, I can just give you a little bit of flavor. Drinks that we rolled out here, we have already taken it to mainstream, and drinks would end up at around INR200 crores of franchise in the current year, which is very significant and should very soon become a INR500 crore franchise, and we are appointing separate distribution network also for drinks. So that is number one.

Juices that we introduced on e-commerce, amla, aloe vera juice etc., that have also got scaled up to the mainstream, and it’s INR20 crore business for us, with a very high gross margin. Then, DCP variants that we’ve launched also has been taken to now mainstream, and that’s also doing reasonably well. Vita and tea that we also launched in this space also now going to be around INR10 crores, INR10 crores brand each. The entire baby care range that we launched on e-commerce is now trending at around INR20 crores annually for us. And HTP variants, which we launched also around INR16 crores, INR17 crores. So overall e-commerce new products will be in the range of roughly around 7%, 8% e-commerce — 10% actually NPD contribution will be there on e-commerce. Chatcola variants around [Phonetic] INR35 crores YTD this December, Limcola and Chatcola for us. Ghees, oils, multiple oils that we guys rolled out, will be exiting at around INR10 crores for us on e-commerce and the list keeps going on. That’s why you see a e-commerce growth of around 40% for us.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Thanks, sir. That’s all from my side. Thanks a lot.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Thanks, Abneesh. Thanks.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie — Analyst

Hi, Mohit and team. Thanks a lot for the opportunity. I just wanted to understand pickup on the inflation comment. So, you highlighted that signs of moderation in inflation and logically the price hikes have also kind of flown through. Could you give us a sense by when do you expect gross margins to normalize to the 49% to 50% levels?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah. So, we have seen abatement in inflation happening, Avi. As we speak, the total inflation this quarter has been 8.5%. We’ve taken price increases in the range of around 6.5%. Going forward, we are expecting the inflation to mute to levels of roughly around 5.5%, but the mix of inflation is actually changing. The crude is softening, and herbs are softening. The concentrates that we are importing because of the currency devaluation of Indian rupee vis-a-vis dollar, that has become dearer, and therefore there is a gross margin compression in our food business going forward is what we guys see, but we are in the process of taking price increases because erstwhile, price increases are only to the tune of around 4% to 5% in food, as compared to the overall company, we’ve taken a 6.5%. So, there’s a headroom and we’ve got ability to take the price stable up being the market leaders there. So, I don’t think we should have a problem in terms of maintaining our gross margins.

So, food business because of the nuance of inflation changing, there could be going forward some compression. Healthcare, we’ve already taken care of inflation and our gross margins are in line with our pre-COVID gross margins now. HPC also, the entire portfolio we’ve taken price increases, but for hair oils, where we are lagging because here, we want to gain market shares. Our price increases are determined by how much a price increase our competitor takes because he being the market leader, we being the follower, so we don’t take the first step in taking price increases. There, our prices are actually lagging and that’s where the contraction of gross margin is most visible in our hair oil portfolio. But rest of the places, we’ve been able to more than compensate the inflation impact and our gross margins is equivalent to pre-COVID levels.

Overall, our gross margin is compressed by 280 basis points, actually in India business it’s compressed by 190 basis points. So, I think going forward the compression will reduce and while last quarter there will be — I think there’ll be another two quarters of pain, before we are able to go back to our old gross margin levels. That’s my prediction, but the market situation is quite in flux and it’s volatile. So, one can’t really comment because it’s dependent on war and multiple other macro factors, yeah.

Avi Mehta — Macquarie — Analyst

Fair point, Mohit. And just building on that, would it be fair to expect the template of balancing ad spends in this period of high inflation just near-term, to ensure that the EBITDA impact is lower and we’ve retained that 20% to 21% kind of range to the extent we can. That template is what you will seek to kind of use?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah. This was a template that we fought off and we entered the year, and in the vision that we want to maintain a 20% operating margin, and that’s exactly what we did in this quarter also. In the previous quarter also, we optimized the spends because there was a gross margin dilution, which happened and we had to cut back and optimize our advertising spends, while overall ad pro spent was in line with the top line around 2% increase our overall ad. For the mix of the media change, instead of advertising too much in ATL, we advertise more in BTL and consumer promotions and paid promotions, so that our market shares don’t get impacted because of which, what has happened is, our LUP percentages have gone up quite a bit, our low unit price points have been selling which is little margin dilutive to us. So, that is a little change of course that we want to do going forward.

We want to chart again going back to reducing our trade spends and increasing our advertising spend. So, intent will be to increase our advertising spends going forward, rationalize the trade spends, and consumer promotions and go back to building demand on our power brands also. So, this is a little change that we are thinking. We are in the process of making our budgets. So going forward, we will be budgeting a significant amount of increase in the ATL expenses going forward, but the intent is not to be at the cost of operating margin, but this is a dilemma that we will sort out as far as when we are creating the budgets here, but the intent will be to maintain our operating margins in the range of around 20%, broadly.

Avi Mehta — Macquarie — Analyst

Perfect, perfect, perfect Mohit. And just a bookkeeping. Could you kind of share what was the volume performance this quarter? I missed that. So that’s the [Indecipherable]. That’s all from my side.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah. Our volume performance, I think, the right measure of looking in the volume performance would be our secondary sales, and in terms of secondary sales, we’ve increased the volume by around 3 percentage points, but due to the mix of our low unit price point selling very high, and the category mix also healthcare being lower and food being higher, the value weighted volume is actually around minus 3%, 6% is the pricing, optically what you see is 6% of the price increase minus 3% is the volume, but in terms of secondary sales and the transaction sales, we’ve actually sold 3% higher in terms of our absolute [Indecipherable] and the tonnage that we actually sell. So because of the formula of accounting, which the CEOs and the accounting standards mandate us to do, that’s why it’s showing a minus 3%. As far as I’m concerned, consumer acquisition is 3% higher, and the numbers are 3% higher in terms of our volume business.

Avi Mehta — Macquarie — Analyst

Perfect. Okay. Thanks a lot. Thanks.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah.

Operator

Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.

Arnab Mitra — Goldman Sachs — Analyst

Yeah, hi, Mohit. My first question was on beverages. So, now as you enter the season of summers in 4Q, which is the sell-in and 1Q just the main offtake, based on your capacity and things like that, how do you expect this to perform given that this quarter was soft, and any headwinds you see in terms of the scale up from INR200 crore to INR500 crores that you’re looking at?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah. So, Arnab, our beverage business has been doing very well, as I alluded to earlier, our beverages will end up doing around INR200 crores only in the drinks segment and in J&N segment also juices and nectars we’ve been consistently gaining share and we’ve gained 250 basis points. Our competitive position in the market is excellent. There are small, cheaper players who’ve entered the beverage segment and they’re posing us some challenge in some modern trade-specific channels, but which we are handling, whether it’s in coconut water. Coming season, we are augmenting our capacity, and the capacities have been augmented in all the three plants of Pantnagar, and we are also setting up a new plant in Indore, and also in Jammu. Jammu for aerated beverages, and Indore for our drinks pack, which is a INR10 and a 200 ml price point, INR10, INR20 price points. So, I think we are pretty much geared up, and there is surplus capacity, which is available outside also. In case we are not able to ramp up, we can always outsource it, and I don’t think we should face any capacity constraints in the summer season.

Arnab Mitra — Goldman Sachs — Analyst

Got it. And just on the margins, Mohit sir, as you said, the gross margins possibly will start improving couple of quarters down the line back to the older levels, but given that you have to also normalize ad spend, would you basically expect EBITDA margins to remain flattish ’24 versus ’23 given that need to get back ad spends to normalized levels?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah, but also Arnab, we’ve taken up price increases and those price increases will follow through as the inflation abate. So, there will be upside of margin because the price increases that we’ve taken. That upside of margin along with the cost optimization that we are doing across the value chain will also flow in. We are also planning to embark on a RGM exercise, which will also release some cost from the system that will plowback into advertising. So, our intent will be to balance between media investments, and also the margin. We don’t want to definitely erode our margins beyond the level where they are. We want to take it up to the pre-COVID levels here. And if you compare it to pre-COVID levels, our margins for the full year anticipated will be down by around 60 basis points to 70 basis points, which is what we want to correct going forward in the next year, which is not a very tall task with the price increases that we’ve taken, and the softening of commodities that we are seeing.

Arnab Mitra — Goldman Sachs — Analyst

Got it. That’s very clear. Thanks so much. All the best.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Thanks, Arnab.

Operator

Thank you. [Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Hi. Good evening, Mohit, and thanks for the opportunity and hearty congratulations for becoming Number 2 player. Just one clarification. On the toothpaste market share what you’ve mentioned, is it volume or value?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

That’s value shares.

Shirish Pardeshi — Centrum Broking — Analyst

And what could be the volume share?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah, volume shares will be even better, around 17%.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay, thanks for that. While looking at the PPT on the foods and beverages slide, the growth was 3.7% and three years CAGR was 14.3% in beverages. I think last four quarters, five quarters, we have been doing the distribution-led growth and the dairy Beverages has done better for us. So, I was a bit surprised that is that the distribution-led consolidation is happening or there was one-off in this quarter?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah. So, I think optically, Shirish, this lower F&B, and we are not very happy with the 3.7% growth that we’ve seen in beverages, but that is illusionary. If you look at this year, the Diwali festival actually got preponed, it got pushed forward. Last year, Diwali happened to be in the month of November. This year Diwali happened to be in month of October, and there is a festive season loading which happens in beverages, which is pre-Diwali. This time the entire loading happened in the month of September for us.

So, if I take September to December, the total growth of the beverage business is in the tune of 16%, which is pretty much in line with what we have done before, and therefore we have gained 250 basis points market share. So, therefore what you see is around 3.78% is actually a lower figure. The right thing would be to look at September to December, which is where it’s a 16% growth. Overall, [Indecipherable] the growth of beverages has been around 30 plus for us and we should continue, and especially looking at some price increases that we may have to take, it may not be only volume-driven. It could be a combination of volume and value going forward.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay, that’s helpful. Just one follow-up on the food and beverages revenue what you’ve reported INR319 crore. How much is, if you can breakup beverages and food, and maybe is there any number which Badshah has been put in here?

Ankush Jain — Chief Financial Officer

So just to clarify, out of this INR320 odd crores, beverages is INR285 crores and balance foods is INR35 crores.

Shirish Pardeshi — Centrum Broking — Analyst

But is there any Badshah consolidation?

Ankush Jain — Chief Financial Officer

No Badshah consolidation, because that will be effective from 2nd of January.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

That will come in the first [Phonetic] quarter. Yeah, so it will be coming in the fourth quarter of this fiscal, so there is no Badshah here.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay. Wonderful.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

And on this, our foods business, while it has done INR35 crores, so we’ll be exiting the year at around INR160 crores, and we have given guidance to the market that this business will also become INR500 crores in next three years to four years’ time. So, we are well within our reach and the business has grown by 30%, 40% plus for us, our food business, on back of launch of oils, ghees, pickles, chutneys and almost getting into five more categories to increase our TAM. So, I think we are well within our pace to achieve that also, and Badshah will only bolster that effort for us.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay. Really helpful. My second and last question on the healthcare business. At this, my past experience suggests that quarter three onwards, our base has become normal for healthcare business, though winter is delayed and understandably there is a spillover in quarter four, which would have happened, but is it fair to assume that, with the normalization of healthcare base, I think our growth will be back on track 8% to 10% is fair to assume and thereby the margin would remain intact. That’s the correct assumption or is there anything which I am not reading correct?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah. In a way, you’re right because past two years of COVID basis we had, which are very high basis and this year also YTD, if you look at healthcare has actually declined for us in the range of minus 7% or so YTD. So therefore, that — they should over, except that January last year there was COVID. So, we are lapping over a high base in the month of January also. So, post quarter four, I think, our basis should normalize and therefore we should begin on a trajectory of growing the business at a normalized growth of what you alluded to.

Even if you look at our ethical business, our ethical businesses declined by around minus 6%, 7%, but there’s a huge component of COVID contextual products here. If you take that out, then the business is actually growing by 7% for us. Our OTC business has already grown by around 11%, so it’s outside of the COVID basis. Honey is already on a trajectory of 9% growth. So, it’s outside of the COVID contextual time. Chyawanprash, which has declined by minus 5%, it is still COVID contextual, and therefore another pain of one month is left, which is January, and after that we should normalize our basis of Chyawanprash also. So that is in granularity about healthcare.

While on Healthcare, I think, another news that I want to give to the market and yourself is that we are taking Executive Director level person from the market, Mr. Philipe Haydon, who was the ex-CEO of Himalaya. He is joining us from today onwards, and that is one of our efforts to really provide impetus to the healthcare business in the Company.

Shirish Pardeshi — Centrum Broking — Analyst

Wonderful. Congratulations for that. So, expect the healthcare should come back in flavor for you. Just you missed on the comment of margin story. Will that normalization will help you to get the margin back for healthcare?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

For healthcare margins, like I told you before, Shirish, they’re already back. So, we’ve already taken price increases, so all the margin downside which had happened because of our inflation, that already been budgeted and there, it’s actually higher than the pre-COVID levels of margins for healthcare also. With the saliency of healthcare moving up, this will actually help our overall margins of the Company, because our salience of healthcare will move up, which has gone down to in the range of around 26% levels and it will only move back to around 30% levels in healthcare on annual basis, yes.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Thank you, Mohit, and all the best.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Sure.

Operator

Thank you. The next question is from the line of Prakash Kapadia from Anived. Please go ahead.

Prakash Kapadia — Anived — Analyst

Yeah. Thanks for the opportunity. Mohit, you have been traveling a lot to rural India over the last few months. What is the sense you are getting in terms of the demand and the inflationary pressure? Is worst of rural demand over? And is FY ’24 going to be a much better year for us as compared to ’23?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah, Prakash, I have a sense. So therefore because rural was dragging us, so I think one of the effort was to actually see it up close and witness is oneself also and that’s why I went, did some pantry checks in the rural households and also in the rural retail and visited the sub-stockists markets and our Yoddha markets, which is what our seeding operations are. So, one thing, a couple of indicators in rural is the downtrading is a reality and consumers are downtrading in the rural. That for sure is happening. So cheaper products are the ones which are actually selling in the market and premiumization is no way to go, while premiumization I think is only in urban. As far as rural is concerned, whereas, people are cutting back on their expenses and downtrading on products and actually choosing among the consideration set, it’s not necessarily a brand. So, a lot of smaller brands have made their way into the rural market just because they were actually cheaper. So that is one sense, which is there is downtrading. So that’s happening. So, price point becomes very important, INR5, INR10, INR2, INR1. Price point is still which reins in the rural.

That said, consumers have not stopped using these products which are essentials, like a hair oil or a toothpaste, which is a glimmer of hope. They’re still using, they’re just downtrading to cheaper brands. So pantry checks, everybody has got a detergent powder and a toothpaste and a soap and a hair oil selling and using because the rural in India is heavily subsidized by the government. Actually, everything government pays for, example, the recreation of the rural. That’s what I’ve witnessed in the central states of UP, MP, Bihar. So, gas is paid for, electricity is paid for, food is paid for, wheat and rice is paid for, education is paid for, mid-day meals are paid for, everything is paid for, and even the toilets are paid for, water is paid for, house, pakka houses are being constructed by the government.

So, therefore there is — that’s why MGNREGA outlay, the demand for MGNREGA is actually going down because everything is paid for by the government. So, I think with the government focus on rural, rural is seeing now growth still happen in rural. A lot of rural people have also come back to urban post-COVID and started working and sending back money back to the rural. So, there is a rural development which are happening in the country and rural development by way of infrastructure development, school development. Progress is very fast, and down-trading is happening at the moment. But I think as the — I think winter sowing has been good and harvesting has been better. I think the income in the hands of rural will only pick up. And we see this rural and urban gap between growths is actually reducing going forward, and in couple of quarters, rural should come back to its old glorious days. I don’t see rural will languish beyond a point. So, I’m pretty hopeful about rural recovery. And as far as our infrastructure investments in rural is concerned, that will continue as the way we have thought through. So, that’s in a way on rural.

Prakash Kapadia — Anived — Analyst

Sure, sure. That is helpful. If you have LUP contribution for the quarter or year-to-date basis for the Company as a whole as compared to last year, that would be helpful.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah. So, our contribution of LUP be in the range of around 25% odd. But if you look at the growth rates of LUP in past couple of quarters, we see LUP growth rate in the range of around 20%, 25% growth rate as compared to a business growth rate of around 3%, 4%. So you can imagine that contributions of LUP will only go up going forward the way things are. And therefore, it is essential to do some urban demand development here, so that our premium larger packs also start doing well, actually. So, that’s the LUP. So, there were penetrations are going up and it’s in a way a virtuous cycle because the more the consumers use your LUPs, they upgrade to the premium packs going forward, a bulk pack, it promises them more economy. So, it’s virtuous cycle, but we have to start doing the demand building also in my view, yeah.

Prakash Kapadia — Anived — Analyst

Okay. And this LUP was more like 20% maybe two, three years ago. Is that the right number to compare?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah, I think it should be lower than even 20% for us and more salient in our HPC portfolio, where we have a INR10, INR20 price point, both in hair oil and shampoo, it’s actually INR1 price point. In toothpaste also, in home care. Less so much in healthcare, which is lower because the price points are generally higher. And in foods, also the INR10 price point and INR20 price points are doing very well for us. Actually, the growth there is in the range of around 80%, 90% for us in our LUPs in the drink business.

Prakash Kapadia — Anived — Analyst

Right. And on the urban side, you did mention to do couple of things to ensure saliency and demand is buoyant in urban. At least the sense is, inflationary impact is far lesser than rural. So, in the near-term, what segments you think will drive the urban side? Will premiumization come back? And how does demand look on the urban side?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah, from a consumer standpoint, I think premiumization and premiumization of the premium packs and upgrading our existing franchises to more premium franchises, for example honey to organic honey, honey to a single flower honey, honey to cassia honey, etc., that will happen. Chyawanprash, in terms of sugar-free Chyawanprash, in terms of Gud Chyawanprash, all that is happening. In terms of hair oil portfolio, launching therapeutic hair oils and oral care launching sensitive toothpaste, I think those efforts are happening and ecommerce as a channel is helping us to actually launch those and nurture those premium offerings within our existing franchises to actually grow. Therefore, our ecommerce NPD contribution is higher than around 10% there and modern trade is also helping us with this whole premiumization story.

And our growth in ecommerce is in the range of around 40%. Modern trade is also in the range of over 11%. We’ve corrected our modern trade issues that we guys were facing in terms of undercutting. And I think modern trade should go up to around 15% to 20% growth going forward in next year also. Class 2 and Class 3 towns is also becoming very salient with infrastructure development. So, we are embarking on exercise which we called MSL, which is Must Stock List, in which we are looking at larger packs to be sold by the last mile salesmen at the retail and incentives to be linked with that in Class 2, Class 3. That’s also happening as we guys speak that exercise, yeah, which we call picture of success implementation. So that exercise is happening which will help us grow our larger packs and premium offerings there, which should help the margins improve and premiumize our portfolios.

Prakash Kapadia — Anived — Analyst

Understood. That’s very clear. Thank you. Thank you. All the best.

Operator

Thank you. The next question is from the line of Abhijeet Kundu from Antique Stock Broking Limited. Please go ahead.

Abhijeet Kundu — Antique Stock Broking Limited — Analyst

Yeah, hi. So, thanks for the opportunity. My question was on getting back to that 10% to 12% growth that Dabur used to have on a very long-term…

Operator

Abhijeet, you’re not clearly audible. Can I request to use the handset.

Abhijeet Kundu — Antique Stock Broking Limited — Analyst

Yeah. Now — just hold on. Now it’s better?

Operator

Yes.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah, yeah.

Abhijeet Kundu — Antique Stock Broking Limited — Analyst

Yeah. So, I was just alluding to the long-term growth of Dabur, when it always used to be about 10% to 12% with health supplements growing at about 8%, 10% at least. And also your hair care business, oral care business — oral care business is really outperforming, growing double digit. And your other businesses also, food business is also growing in double digits. So, the point here is that, if we have to look at one year or two year and rural remaining a bit muted or not muted maybe, rural seeing a recovery, how do you steer it forward in case of your hair care and oral care business? My clear pointed question is that, that what would be the efforts required? And secondly, how much would be rural contribution for you in hair care and oral care? Yeah, that’s it.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Right. I think — I think we’ve got our game plans and the market strategies right in terms of oral care and hair care. In hair care, our strategy is very clearly — we got core business and we have core brands, and we got our flanker brands. Flanker brands actually create a moat around our core brands, and they keep protecting our core brands that are more profitable, and we keep growing our market share with core and flanker brands in the hair oil portfolio. In shampoo portfolio, we are very clear, the way we have done in oral care, carve out a niche of natural in shampoo, that’s what we guys are doing with Vatika Shampoo, increasing our bottle saliency in modern trade. Our bottle saliency is already 20% in Shampoo. That will keep inching-up and our margins will keep growing and we have a huge headroom to grow in the shampoo business.

In hair care also, there are various sub-segments of hair oils, and we are flanking our brand into more to the sub-segments and trying to gain share from the competitor in those sub-segments. So strategy is being very clear. Oral care is giving us great dividends. Even in hair oil, we are getting dividends in terms of market share gains in all the sub-segments. In shampoo also we are getting significant gains. So, I’ve got — we’ve got our whole game plan, the plan of action, all placed out and we are now executing, trying to execute with perfection, and there is no reason, because at the end of the day, if you look at, Abhijeet, our market shares are only into 16%, 15%. So, we have a huge headroom of around 85% of growth. So, it’s only depends upon how much of execution excellence we have in the marketplace with the strategy being right and how much of market share gains we can have. But if the categories decline, then that becomes a pressure on the number two player. And that is what is happening now. So, we want to punch our weight over the category and therefore, if the category is growing by 4%, 5%, we want to grow at around 7%, 8% to gain market shares for us. So, it depends upon the category growths.

If the category is flagging in this minus 5%, 6%, which is the case now, hair oils is down by 4.5%, oral care is down by around 8%, so we end up growing at around 3% and 4%. That’s where it becomes a low single digit for us. So because we are not isolated from the category growth rates, so that’s where we are. As far as rural contribution is concerned, oral care 40% contribution comes from the rural and hair care around 46% comes from rural for us. We are more rural salient. If you look at the Dabur heartland, which is UP, MP, Bihar, where we guys are very strong and higher market shares there, there our rural contributions will be even higher, more than around 50% is the rural. So that I think answers your question.

Abhijeet Kundu — Antique Stock Broking Limited — Analyst

Yeah, thanks. And we in Q3 suddenly there has been a further deterioration. If we look at the overall trend, then suddenly, Q3 has seen a sharper decline. There have been — I mean, there has been moderation in growth. So, anything that has gone in during this quarter, any specific reason that you see?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

No, if you look at the market growth rates, the markets have actually deteriorated in quarter three, so plus our base effect has kicked in. We had high bases of last year. Number two, inflationary pressures, which are there, because of price increase, the rural is this thing and there has been a deficient rainfall also, which has happened in our heartland, which is — if you look at the bifurcation of our growth between north, south, east, west, all the three regions, whether it’s north or it’s east or it’s west or it’s south, all have done well, but for the central region, which has actually declined by around 3%, 4% and central region comprises of UP and Bihar for us. If you look at ex-central, which is ex these two states, our growth is around 8%. So, I think it’s one state, two-state phenomena, which is Bihar and UP because of deficient rainfall and rural slowdown, where rural contribution is also high, has actually pulled us down. That is a isolated factor because of rainfall deficit and also late winters, and therefore winter products also did not sell much there, so that’s a very isolated issue and it’s in a pocket. I don’t think they should last for very long, yeah.

Abhijeet Kundu — Antique Stock Broking Limited — Analyst

Okay. But in the near-term, Q4 should be under pressure, I mean, for the industry also as a whole by that means?

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Yeah, that is dependent on the industry. The growth rates, if you look at the growth rates, if I look at the FMCG industry growth rate, if we look at quarter one, the growth rate was 11%; in quarter two, growth rate came down to 9%; in quarter three, the growth rate is around 8.2%. This, I’m talking about value growth rates. If you look at volume also, volume also has steadily declined. So — and in our relevant categories, growth was around 1%, then it became minus 4% and now, has become minus 5%. So, we are no isolated case here. But if you look at rural, we are seeing some growth in rural markets going forward. So, I think it’s the market. I think as the —with the government stimulus, as the budget talked about yesterday, 360-degree budget, there is something for everybody in that budget. The middle class will also shore up as more disposable income in the hands of middle class with tax rationalization, which has happened. There is so much for rural. There are farm subsidies and overall micro schemes which are being introduced by the government. I think that should augur very well going forward in the future for the economy and both urban and rural should see some improvement, yeah.

Abhijeet Kundu — Antique Stock Broking Limited — Analyst

Okay. Got it. Thanks. That’s it from my side.

Mohit Malhotra — Whole-Time Director & Chief Executive Officer

Thanks.

Operator

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Ms. Gagan Ahluwalia for closing comments. Thank you and over to you, ma’am.

Gagan Ahluwalia — Vice President – Corporate Affairs

Thank you, Aman. Thank you for your participation in this webcast audio recording, and transcript of this call will be available on our website. Thank you and have a nice evening everyone.

Operator

[Operator Closing Remarks]