Unrest forces Dabur to rethink Pak, Nepal plans

Following political disturbances in the neighbouring markets of Pakistan and Nepal, homegrown FMCG company Dabur India is now rethinking its strategy for the sub-continent. The company currently operates in Nepal through a subsidiary, while in Pakistan it has trading operations through its Dubai subsidiary.

Dabur’s international business stands at around Rs 380 crore, out of which Nepal accounts for Rs 40 crore, while Pakistan contributes around Rs 10-12 crore.

SLIPPERY GROUND

Dabur’s international business stands at around Rs 380 crore

Nepal accounts for Rs 40 crore, while Pakistan contributes around Rs 10-12 crore.

Dabur currently operates in Nepal through a subsidiary, while in Pakistan it has trading operations through its Dubai arm

Its subsidiary Dabur Nepal has been losing production days due to the Maoist unrest

Dabur is in the process of setting up a manufacturing facility in Pakistan which will start functioning from the third quarter of the current fiscal.

“What we are doing in Pakistan is to have a simple packing operation first for packaging and assembling the products shipped into Pakistan and later evolve it to a fully functional manufacturing unit,” Sunil Duggal, CEO, Dabur India, told Business Standard. Bulk products will be shipped out of Dubai and other markets and will be assembled at the new facility in Pakistan.

Last year Dabur saw flat sales in Pakistan largely due to political instability and the change in the import policy which led to higher duties, which in turn impacted both the revenue and the margins.

“This year while the margin comparison still remains, we see stability come in and hence we will se much better topline growth,” Duggal said. At present a range of Dabur products, including cosmetics and some medicines, are imported by Pakistan mainly from Dubai.

“The strategy we have adopted for Pakistan is essential to have a presence in that country. Otherwise duty structure makes it non-viable,” he said adding: “Pakistani rupee is depreciating and if you are shipping out in dollars and selling in Pakistani rupee the business inherently is unstable.”

On the other hand, its subsidiary Dabur Nepal has been losing production days due to the Maoist unrest in Nepal. “We saw at least 21 days of lost production within the first quarter this year and it has immense downstream consequences in terms of product availability,” Duggal said.

Dabur’s Nepal manufacturing facility is largely a juice factory, running full capacity, and sources the raw material from distant locations like Brazil and Norway. Any dislocation in supply chain takes at least 2-3 months to restore operations.

“The profitability of Nepal plant is very high as is the capital investment involved. Thus we haven’t been able to find an alternative to Nepal,” Duggal said. It has raised the bar in terms of inventories to deal with lost production days.

“Even if we are less efficient in terms of our inventories, we will build additional capacities to deal with disruption,” Duggal said. The company will take up the present 21-day raw and packaging material inventory time to 35 days. While this may increase the cost of production, Dabur does not wish to compromise on market share and consumer confidence.

However, bulk of Dabur’s international business comes from the GCC (Gulf Cooperation Council) countries and Africa.

Sales of Dabur products in GCC region has been growing at around 30 per cent year-on-year led by higher pricing power and increased consumer offtakes, while sales in the African markets more than doubled during the quarter, led by strong growth in Nigeria. The international business grew by 25.5 per cent last year.