Price hike is the last thing on our mind: Dabur India CEO Mohit Malhotra

'We are very reluctant because price rise has an impact on the demand as well as the volume growth', he said

Dabur India is entering the spices market and looking to strengthen its foothold in the food and beverage space, its Chief Executive Officer (CEO) Mohit Malhotra told Pratigya Yadav and Sharleen D’Souza in an interview. Edited excerpts:   

What is the rationale behind acquiring a majority stake in Badshah Masala? 
 

We undertook an exercise almost a year ago in which we appointed BCG to do category-wise evaluations of how to broaden our base to increase our total addressable market from being a beverage player to a foods and beverage company. One of the two food categories that emerged was tea. The other was spices, condiments, and seasonings. In the tea category, we made an organic entry. But in the spice business, we thought of entering organically, but it is a very slow process.  

Spices are very taste- and preference-driven in India, and there are regionalised players here. We thought it was best to have an inorganic play, and that’s when we started scouting for partners. 
 

The Indian spices market is roughly Rs 60,000 crore, of which Rs 25,000 crore is the branded market. And of the Rs 25,000 crore, 50 per cent is blended and raw masala market. So, Badshah is a significant number two player in the western Indian space, with blended masala accounting for 80 per cent of the portfolio. This market is big in terms of size, at Rs 25,000 crore, as compared to the hair oil or toothpaste category, which are all around Rs 10,000-12,000 crore, and it has a growth rate of around 15-20 per cent. The category is growing because it's getting converted from an unbranded to branded category.  

Most of the players present in this category’s internal competition will tend to be fragmented with small region players. The gross margins in the business are accretive to our beverage business, which is a good thing for profitability, and the category size is also huge. 

Will you consider more acquisitions to increase your presence in the foods and beverage space? 
 

We are continuously on the lookout for acquisition targets, but it depends on chance, negotiations, and the kind of collaboration. So, it takes a lot of time. You can’t pin your hopes on acquisitions, so we have planned organic entries. Peanut butter is definitely an organic entry that we want to scale up in three months. 
 

We are already the largest-selling peanut butter on e-commerce. But, as you know, organic entry happens slowly and the growth is very slow, whereas inorganic entry happens pretty fast. So, we continue to look out for nutraceutical and value-added food category brands. If something comes our way, we will definitely get in, like we made an inorganic entry into spices. We definitely want to increase our total addressable market in the grocery channel. We want to make food as vertical as Rs 500 crore in the next three years. 

When do you expect inflation to ease and Dabur’s margins to improve? 
 

We witnessed inflation about 10 per cent in the quarter. In the next quarter, we are looking at inflation of around 6-6.5 per cent and we are lapping over a high inflation quarter.  
 

Sequentially, our margins will become better and margin contraction will reduce. But I won't say that margins will expand. We've already taken a 6 per cent increase to offset the inflation of around 10 per cent, so there will be a contraction but that will be much lower as to what you saw in the past two quarters. 

Will you further raise prices? 
 

We are very reluctant because price rise has an impact on the demand as well as the volume growth. As it is, all the categories that we are operating in the categories are actually shrinking in terms of volume. Price increase is the last thing that we want to do at this time.   

We've already taken two rounds of pricing. We don't want to increase the prices. But if push comes to shove and inflation doesn't abate at all, then in the market leadership category, we may see price increases, which is the food and health care business.  

Our home and personal care business is very competitive. If the competition takes price increases, we will follow suit. 

When do you expect rural growth to return? 
 

According to NielsenIQ data, rural has been lagging urban for the past six quarters. Urban recovery has been on the back of Covid instances going down and people doing revenge purchases, a rise in modern trade and e-commerce, and cash and carry new channels emerging. Rural areas have been lagging for a long time and the inflation impact has been more there. So, Dabur did not see this. We were bucking the trend of the market, while the market talked about the rural slowdown, Dabur was doing well. Our rural business was trending higher than urban because of the infrastructure that we put in. In this quarter, we have seen liquidity pressure happening in rural India. Money is not there in rural and rural consumers are cutting back on discretionary spending. Retailers are not paying up to the sub-stockists and, in turn, we have to give credit extensions in the rural areas. We’ve seen a pinch in rural areas. 
 

Monsoon was very patchy in Uttar Pradesh, Bihar, and parts of West Bengal, because of which outlay coming from the crop has not been very good. I see another quarter of rural pain, and only in the next fiscal year, we will see rural recovery. I hope the festive season brings some offtake.