Rejuvenating Dabur: How the ayurveda major is aiming for a brand-new strategy via its Rs 1,000-crore power brands

The original ayurveda major is aiming for immunity from dips with a basket of Rs 1,000-crore power brands

On April  1, 2019, when Mohit Malhotra got the corner office at Dabur India’s headquarters in Ghaziabad, Uttar Pradesh, the company’s top line had been flat for three years, and the new CEO would soon have to sign off on lacklustre numbers for the year that just closed. Malhotra, a Dabur insider brought in from the international business in 2018 to head the India business and then given the helm, got growth going again. Sales rose by 10 per cent in his first year, and the Covid-19 pandemic that hit an unsuspecting world in 2020 powered the growth of anything that claimed to boost immunity. Dabur grew in FY21 and FY22.

But Dabur’s revenue growth has been inconsistent over the past decade. And Malhotra and Dabur’s promoters, the Burmans, are banking on a strategy to ensure sustainable growth. No ups and downs, please.

“ Things are looking up as we see, and our first quarter results also portrayed the same result. In terms of competitive intensity, ours were by far better results ”

MOHIT MALHOTRA
CEO
Dabur India

Look at the ride. Since FY14, Dabur, whose roots are in the 19th century, has grown its top line at a CAGR of 5.5 per cent—from Rs 7,094 crore in FY14 to Rs 11,530 crore in FY23. Its peers, such as Britannia Industries and Nestlé India, performed significantly better during this period. Britannia grew its sales at a CAGR of 11.3 per cent, from Rs 6,232 crore in FY14 to Rs 16,300 crore in FY23. Nestlé India, despite the life-threatening crisis at its flagship Maggi noodles in 2015, showed a 7 per cent CAGR in top line growth to Rs 16,897 crore in calendar year 2022. The company follows a January-December financial year. Diversified fast-moving consumer goods (FMCG) players such as ITC and Hindustan Unilever Ltd (HUL) scored big on growth. And peer Marico saw top-line growth of 8.5 per cent— from Rs 4,687 crore in FY14 to Rs 9,764 in FY23.

According to Amnish Aggarwal, Head of Research at financial services firm Prabhudas Lilladher, Dabur’s top-line performance over the past eight or nine years has been mixed. Two things queered the pitch. First, it faced severe challenges in its businesses abroad, which account for nearly a quarter of its consolidated sales, as the economies slowed. Second, because of currency fluctuations, international sales translated into smaller numbers. “Barring one year, in the past five or seven years, the growth rate of its subsidiaries has been in single digits. During this period, in two-three years, they have reported de-growth in sales due to multiple factors like distribution issues and slowdown in some of the Middle-eastern markets and currency volatility,” he says.

MOHIT BURMAN
Chairman
Dabur India

In the April-June quarter, Dabur’s international business grew by 20.6 per cent in constant currency terms but only 10.2 per cent when adjusted for depreciation. The revenue share of the international business has fallen from 30.7 per cent in FY17 to 27.5 per cent in FY20 and 24.7 per cent in FY23. However, Mohit Burman, Chairman of Dabur India, is confident that the company will grow its international business by over 20 per cent a year. “We remain confident of leveraging the growth opportunities to drive sustainable and profitable growth across our businesses,” he tells Business Today. The plan is to grow Dabur’s core business in the Middle-east and North Africa (the MENA market) and South Asia “while further strengthening our go-to-market, channels and category development”.

Meanwhile, two investments made by the Burman family office are facing challenges: dry-cell battery maker Eveready is struggling for growth, apart from a boardroom battle for control of Religare Enterprises, a company offering a suite of financial services.

" Dabur’s power brand strategy has helped its business in recent quarters. It is a much diversified FMCG company compared with most of its peers "

NAVEEN TRIVEDI
Institutional Research Analyst
HDFC Securities

But back to Dabur. Since Malhotra took charge, its top line has grown at a CAGR of 8 per cent from Rs 8,533 crore in FY19 to Rs 11,530 crore in FY23. The pandemic disrupted many businesses, with most consumer goods companies reporting sharp drops in sales, but it powered Dabur’s growth. That was “a good time,” Malhotra recalls. “You know, most other companies were down and under pressure, and there was gloom and doom for all businesses. But it was a good time for Dabur.” As consumers desperately sought immunity-boosting options, Dabur’s Chyawanprash sales shot up by 20 times, while sales of its honey multiplied by 10 times. “The business was doing so well. I realised then that this will come and pinch me later,” he recalls.

His hunch came true. When the pandemic receded in the second half of 2022, Dabur’s top-line growth slipped from 10 per cent in FY21 and 14 per cent in FY22 to 5.9 per cent in FY23. Inflation has nudged up input costs, packaging, and logistics since early 2022. In FY22, its net profit grew by 2.7 per cent and slipped by 0.5 per cent in FY23. After growing by 11.9 per cent and 11.7 per cent, respectively, in the previous two years, its Ebitda declined 4 per cent last year as it had to absorb a portion of increased costs.

Inflation could not have come at a worse time. “We felt as if Covid-19 was now behind us; everything would be nice and normal, and we would witness an upswing. There was a deflationary environment for five years, so everybody was making a profit. Suddenly, the inflation came,” rues Malhotra. With production costs up in double digits, Dabur had to pass on a part of the extra costs to consumers. “Money in the hands of the consumer went down. We guys [the FMCG players] are the barometer of the industry. So we initially thought the consumer might not feel the pinch and consumer staples wouldn’t get impacted, but they were impacted,” he says.

Dabur marked up its healthcare products, which enjoy market-leading positions, and cut advertising and promotional expenses. The mark-ups accounted for only 6 per cent of the 10-11 per cent rise in costs, and it had to take a 4 per cent hit on margins.

Prabhudas Lilladher’s Aggarwal says Dabur’s healthcare business was lacklustre last year, and the personal care portfolio (skincare and haircare) has suffered as their consumption has declined marginally after Covid-19. Malhotra insists these are in the past. At his sprawling corner office overlooking the vast greenery in and around Kaushambi in Ghaziabad, Malhotra radiates confidence as he unveils Dabur’s plans. In H1FY24, net sales were up 9 per cent, to Rs 6,334 crore, from Rs 5,808 crore in H1FY23. 

The home and personal care (HPC) segment, which contributes over 47 per cent to domestic sales, grew handsomely, while its oral care business grew 13 per cent year-on-year (YoY). In comparison, market leader Colgate grew by 7 per cent. Malhotra says Dabur, the second largest player in the local toothpaste market, gained market share across 95 per cent of its portfolio. “So things are looking up as we see, and our first quarter results also portrayed the same result. In terms of competitive intensity, ours were by far better results,” he says.

" Dabur’s top-line performance over the past eight or nine years has been mixed. Two things queered the pitch. It faced challenges in its businesses abroad. And, currency volatility has translated into smaller numbers "

AMNISH AGGARWAL
Head of Research
Prabhudas Lilladher

 

But profitability remains a concern. Despite broad margins and top-line growth by double digits, its net profit was up by just 3.4 per cent YoY to Rs 964 crore.

Powering Dabur 

The management is revving up the ‘power brands strategy’ it had worked out before Covid-19. Burman says the strategy will help Dabur hit its mid- to long-term goals. “We intend to develop these power brands to power platforms by introducing a range of products and formats under each brand, expanding the total addressable market,” he says. Dabur will also step up innovation and make the brands more attractive to younger consumers.   

Dabur has identified eight power brands in India and one for the international markets. Burman says it could increase the number of power brands based on their potential to grow into “Rs 1,000-crore” brands. The company will back the brands with more muscle in direct-to-consumer and distribution.

Malhotra says the strategy is derived from Dabur’s current market position. Its revenue is a fifth of the largest player in the market (HUL), but its shelf space is just 4 per cent. The company needs to increase its addressable market to grow its shelf space “to 10 per cent at least”. “So, how do we increase our addressable market? We are in the HPC space, with Dabur Amla as a power brand. It is present only in the hair oil space. Can that get into shampoos? The answer is yes,” he explains. Then, why not explore the premium and economy price segments within haircare under Dabur Amla? In oral care, his bet is on Dabur Red, which is in toothpowder and toothpaste. Why not tooth gel, he asks. Dabur’s share of the oral care market is 17 per cent, against Colgate’s 50 per cent, leaving ample room for growth. In skincare, the brand Fem, which is into bleaches, could be expanded into lotions or creams.

The health and nutraceuticals market, which grew sharply during Covid-19, will be addressed by its brands Dabur Chyawanprash and Dabur Honey. It could use the Chyawanprash brand to grow in nutraceuticals and health drinks and the Honey brand to put more items on the breakfast table. Malhotra will use the Dabur Lal Tail brand to get into the gap in the baby care space left due to Johnson and Johnson’s exit. “We flew our test balloon on e-commerce and found it very successful. We launched a baby powder, diapers, baby oil and a baby diaper rash cream. We launched a whole range of around 10 SKUs there. The brand is yielding over Rs 20 crore. And now, from e-commerce, I have to take it to the mainstream for it to grow and spread,” he explains.

Dabur Honitus is its power brand in over-the-counter or OTC medications, while Dabur Shilajit is being readied in male wellness. Malhotra hopes that, as urbanisation grows, its male wellness business, which is growing at 30 per cent, will also become substantial. Naveen Trivedi, Institutional Research Analyst at HDFC Securities, says Dabur’s power brand strategy has helped its business in recent quarters. “Dabur is a much diversified FMCG company compared with most of its peers. It aims to leverage and scale its core brands to the desired levels,” he says. 

While Dabur is yet to announce its numbers for the October-December 2023 quarter, it recently informed the BSE in a filing that it witnessed “sequential improvement in demand trends” and Dabur’s “consolidated revenue is expected to register mid to high single-digit [5-9 per cent] growth” during the quarter. Its international business is expected to register double-digit growth in constant currency terms, led by good momentum in the MENA region. At the same time, gross margins are likely to expand, led by moderating inflation and cost-saving initiatives.

All its plans will come to nought without a good distribution set-up. A strong distribution backbone will fetch Dabur new consumers and more shelf space. Dabur says its brands reach 110,000 of India’s 600,000 villages directly. “We aim to increase the number... and take it closer to 200,000, which the largest FMCG companies in India today serve directly,” says Malhotra.

To place more products in the outlets, Dabur will first test them on e-commerce platforms and then hit modern trade, followed by kiranas or neighbourhood shops. “We have got a playbook on how our vision will be realised for increasing the addressable market-by offering new benefits and targeting new consumers, contemporising our brands and modernising our formats,” adds Malhotra.

Dabur has budgeted 15 per cent of its revenue over the next four-five years to expand sales and distribution and 8-9 per cent for advertising and promotion. An analysis by HDFC Institutional Research says the measures have started showing results. Between FY19 and FY23, Dabur’s market share in key categories jumped. For instance, digestives saw a gain of 786 basis points (bps) in share, chyawanprash saw 462 bps, honey (400 bps), juices (364 bps) and mosquito repellent creams (350 bps), among others. 

According to analysts at Prabhudas Lilladher, Dabur’s strategy of “innovation and launches in core segments will help achieve double-digit sales growth”. HDFC Securities reckons its net profit growth will improve to 18.5 per cent and 14 per cent, respectively, in FY24 and FY25. 

Dabur claims its products currently reach 80 per cent of households across India and 95-100 per cent in states such as UP, Bihar and Madhya Pradesh, where it has a stronghold and the share of the rural population is higher. The rural market comes with its problems. Although inflation has declined, rural India is growing at its slowest pace in over a decade. Analysts also point out that the states where Dabur has a stronghold have low per capita income. 

Shubhajit Sen, Founding Partner of APriori Consultants, says that Dabur has some brands that are “fundamentally strong”, but its high exposure to the rural market and middle-income urban households has turned out to be a key challenge in recent times, as mass market segments are under stress. On the other hand, Sen says, Dabur has not adequately captured the “most dynamic segment of the market,” comprised of rapidly growing young, urban consumers with deep pockets.

Dabur gets nearly 45 per cent of its domestic sales from rural households-much higher than the industry average of 35 per cent. For instance, one of the key factors that played in favour of Nestlé India in recent times is its lower exposure to the rural market. Unlike Dabur, Nestlé India gets a little over 20 per cent of its sales from semi-urban and rural areas.

Dabur has set new targets. “We intend to grow the (domestic) healthcare business to Rs 5,000 crore, the home & personal care business to Rs 7,000 crore, and to double our foods & beverages business in the mid-term, five years,” says Burman.

In FY23, Dabur’s HPC business was Rs 4,100 crore, and healthcare was Rs 2,752 crore, with a total domestic sales of Rs 8,684 crore. Food & beverages fetched Rs 1,832 crore.

Malhotra expects turnover to reach Rs 20,000 crore by the end of the decade, double the figure for FY23. Will the growth be steady? For Malhotra, the view from the two glass walls in his corner room is good.