Second Quarter - Dabur India Limited
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Second Quarter - Dabur India Limited
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<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008“<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong>Q2/H1 Earnings Conference Call”October 31 st , 2008<strong>Dabur</strong> <strong>India</strong> Ltd.’s ParticipantsMr. Sunil Duggal - CEOMr. Rajan Varma - CFOMr. Saibal Sengupta - General Manager-FinanceMrs. Gagan Ahluwalia - AGM-Corporate affairs
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Mrs. Gagan Ahluwalia: Good afternoon friends. I welcome everyone for this conference call hosted by <strong>Dabur</strong> <strong>India</strong><strong>Limited</strong> regarding the financial results for the half year ended September 30, 2008. I havehere with me Mr. Sunil Duggal, CEO, Mr. Rajan Verma, CFO and Mr. Saibal Sengupta,General Manager, Finance. In this conference call, we will first have a brief presentation byMr. Sunil Duggal on the half-year performance followed by a Q&A session. Due to timeconstraints we will have to restrict today’s call to one hour only, therefore the call will endat 5 p.m. Thank you and I hand over now to Mr. Duggal.
Sunil Duggal:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Good afternoon, ladies and gentlemen. I welcome you all to our conference call regardingthe results for the half-year ended October 30, 2008. <strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> has delivered agrowth of 16.7% in consolidated sales in the half-year period with a stronger 17.8% growthduring the second quarter. Net profit on consolidated basis including retail registered agrowth of 12.4% for the half-year period with similar performance in the second quarter.Net profit excluding retail registered a growth of 17.8% for the half year and 15.7% for thesecond quarter. The overseas business housed under the international business divisionposted an impressive growth of 40.1% for the half year and similar growth in the secondquarter. Our renewed focus on ayurvedic and OTC healthcare category have lead to stronggrowth for the consumer health division (CHD), which has reported 22.6% growth duringthe half year and 21% during the quarter. The consumer care division, which is ourdomestic FMCG business, grew by 11.3% for the first half and 12.7% for the quarter.Amongst the various categories, hair oil, shampoos, health supplements and skin careposted the best results.Hair oils have recorded a growth of 16% for the six months and 20% for the second quarter.The performance is lead by impressive growth in <strong>Dabur</strong> Amla Hair Oil and Anmol CoconutOil. Vatika Hair Oil reported a good pick up in the second quarter posting a 12.5% growth.Shampoo category grew by a strong 31.3% for the first half, 36.4% for the quarter. All thevariants have performed well while the newly launched Vatika Black Shine Shampooreported sales of 7 crores in the first six months of launch.Health supplements recorded steady growth of 13.4% with good performance from <strong>Dabur</strong>Honey, which grew by 17.7% for first half and 20.4% during the quarter. <strong>Dabur</strong>Chyawanprash registered a growth of 11.3% for the half-year period. Another celebritybrand ambassador has been taken on board for <strong>Dabur</strong> Chyawanprash whose name will beannounced shortly. Skin care category performed well with growth of 18.1% for the firsthalf and 24% for second quarter after excluding the discontinued business of Vatika Soap.This was driven by strong growth momentum in the Gulabari Brand backed by aggressiveactivation programs and beauty pageants in West Bengal and Uttar Pradesh, which havegiven a good boost to the brand. The new variants, that is Gulabari Hydrating Rose Creamand lotion have been launched nationally and have received a good response.Oral care category reported a moderate growth of 4.4% mainly due to marginal decline inLal Dantmanjan. The category excluding tooth powder grew by 10% during the half-yearperiod. The toothpaste growth has been subdued as Babool our biggest brand had flat salesgrowth due to some denomination issues, which have been addressed. The digestivescategory grew by 4.4% in the first half and 10% during the quarter. Hajmola brandperformed well, but Pudin Hara showed a decline. The brand is set for a relaunch in thelater part of the year.
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Home care sales recorded a growth of 9.4% for the first half and 17.1% for the secondquarter. Odomos Aerosol, which operate in the air freshener category, are posting goodsales while Odomos brand continues to remain under pressure. A number of initiativessuch as launch of two new variants Odomos Gel and Odomos Naturals are expected torevive the brand going forward. The food business registered a growth in sales of 12%during the first half and 8.6% growth in the second quarter. Food sales growth wasdepressed due to supply side constraints resulting from closure of Nepal factory, which wasshut for approximately a month. Our market leadership in juice segment continues to bemaintained with plans to launch new fruit drinks brand are under way.On the operating profit front EBITDA margins including the retail impact has contracted by56 basis points to 18.2% during first half of ‘09 for the consolidated business, howeverEBITDA margins for our core FMCG business that is excluding the retail impact continueto be stable at 19% for the first half of the current year. Significant inflationary pressurecontinued with inflation touching a peak of 13% during the period. We were able to containthe inflationary impact through calibrated price increases and efficient management cost.Overall the company continues to experience strong off takes for its products in spite of theeconomic downturn. However there are challenges on the cost front with the volatilecommodity prices, which need to be dealt with utmost care and diligence. We will continueto build the growth drivers aggressively and capture opportunities as this market evolvesand changes. With this I would now open the house for the Q&A session. Thank you.Abneesh Roy from Edelweiss SecuritiesAbneesh Roy:Hi sir, my first question is on your oral care business. Babool toothpaste has risen only by2%, you said there were some reasons for this. I wanted to understand that better.Sunil Duggal:Yes. I think the main reason as we do a diagnosis of the issues facing Babool is that ourbiggest selling SKU was Rs.10 for 50 gm offering. Now that particular SKU came underimmense margin pressure because of sharp rise in input cost in the later part of last year.With this we were constrained to take up prices by Re.1 to Rs. 11 and that lead to a verysharp decline in sales/volumes of this particular SKU as there is a very strong demand for aRs.10 price point product, which we had vacated.We have corrected that mistake. We havegone back to Rs.10 by re-engineering the product offering so that we get a very goodmargin at the Rs.10 price point and we will reestablish our supremacy of this price point inthe months to come. So we are very hopeful that Babool will experience a strong revival inthe second half of the year.Abneesh Roy:Sir going back to earlier price, does it mean that either you have reduced the weight or themargins are getting dipped due to this?
Sunil Duggal:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008No actually we have increased the grammage. I will tell you what we have done. Earlieron the 50 gm SKU we included a toothbrush free and one of the reasons for this sharperosion of margin was the very steep increase in prices of toothbrushes because of PVCimpact, etc., so what we have done is we have removed the toothbrush and we have upsizedthe product to 75 grams from the earlier 50 grams, pricing it at Rs.10, we are nowgetting a much better margin than what we were getting earlier at the Rs.10 price point andwe believe that we are giving the customer great value by giving him 75 grams at Rs.10 , sothat is basically what we have done and we believe that this mix would work perhaps a littlebit better than what the earlier one did.Abneesh Roy:Sir, coming to your shampoo division, you have done well in terms of market shareincreasing from 4.3% to 5.7%, of course Vatika Black Shine would have helped to anextent. I wanted to understand once the first quarter is over normally a new product salesdip a bit, so is this 5.7% market share really sustainable?Sunil Duggal:We are very sure it is sustainable because the brands have great momentum. I think thegood part of the shampoo portfolio is that all the four variants in the non-dandruff categoryare firing extremely well, so normally what happens is when you introduce a new variantone of the other one tends to taper off, but here all the four variants are doing extremelywell, so we are very hopeful that we will be able to sustain and continue the momentum.What we have also done is to revive the growth in the anti-dandruff category, which wasnot doing so well and which would further accelerate with some very interesting newadditions to the anti-dandruff platform. I am very confident about the growth of theshampoo portfolio being maintained.Abneesh Roy:Sir, one question was on retail losses. They have increased slightly quarter-on-quarter fromaround 4.9 crores to around 5.2 crores, so could you give us some color on the sales frontand are the losses are actually going to reduce going forward?Sunil Duggal:What I would think will happen is that we will have similar levels of losses in the thirdquarter and we will be able to truncate losses considerably in the fourth. We have put inplans to realize this objective. It will take a little bit of time for that to actually happen onthe ground, so we will probably see losses o of the same magnitude in the third quarter, butlike I said before ,fourth quarter should be much better and going forward we would seemuch, lower losses.Abneesh Roy:My last question is on your foods division in which the growth has been far lesser comparedto the other division. One key reason has been the supply side constraints. Are we doinganything on the supply side because Nepal might continue to have these problems goingforward also?
Sunil Duggal:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008See we have been progressively reducing our dependence on Nepal, it was 80% of the mixone year ago, today it is something like 60% and we can bring it down further from 55% to50% in the near term. That is one way to de-risk the business model and we believe thatnow that the long term settlement has been signed ,the whole labour issues have been sortedout, the climate in Nepal would be better as well going forward. we have got bettermanagement/control now of the supply chain in terms of inventories so we can ramp up the<strong>India</strong> operations. We are building a lot of capacities in to the <strong>India</strong>n operations to makesure that what happened in September actually does not happen again.Abneesh Roy:That is all from my side. Thanks.Percy Panthaki of HSBC SecuritiesPercy PanthakiHi, good evening sir, congrats on a good set of numbers. Sir just wanted to understand inyour hair oils category what is the split between volume and price growth?Sunil Duggal:In Amla it is approximately 10% volume and 8% price. The hair oils category as a whole infact showed little bit higher price increases as compared to many other categories.Percy PanthakiOkay and secondly again on the foods category I believe this is probably the third or fourthquarter where the growth has been slightly below the expectation, so you have mentioned acouple of solutions to that, one is depending less around Nepal etc., but do you think thatapart from the supply chain issue there is probably an issue in terms of the demand side alsobecause whenever I go to a mall the brand proliferation in the juices segment that I hadwitnessed has been really huge, there are so many brands whose names I am probablyseeing for the first time.Sunil Duggal:Yes, you are right, we have an issue in modern trade, not from the quality competitors likeTropicana but from the lesser brands who are able to offer huge margins, so typically youwill get a juice there for Rs.50 a liter, Rs.100 for 2 liters that is typically the price point thatis operating in modern trade. Over and above, they are lubricating modern trade withenormously high mark ups so there is a issue with modern trade which we can only addressby reinforcing our consumer franchise, so we have significantly upped our strength in termsof A&P, which we will continue to do so and I think the answer lies in telling the peoplethat our product is better, it has got a higher juice content and therefore even if you have topay a little bit higher price so be it, so for the traditional trade which is really the heart andsoul of the business, it is pretty much intact, while there has been a slippage over the last 2years or 3 years in terms of our modern trade share, our traditional trade share has remainedintact and has in fact grown, so we will find a way to address the modern trade issues, butthere is no easy solution to that.
Percy Panthaki<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008What would be your approximate split of revenues between modern trade and general tradefor the juices?Sunil Duggal: 80:20,Percy Panthaki80% is in the general trade.Sunil Duggal:But the modern trade should have been showing better growth than what we had expected itto be. I think one thing which perhaps goes in our favor near term at least is that moderntrade is tapering off very rapidly because the huge acceleration which you saw last year hascome to a completely grinding halt, so the dependency on modern trade would reduce goingforward and I think that would add to our advantage because our strength ultimately is morein traditional trade than in modern trade vis-à-vis the smaller competitors.Percy PanthakiBut this Rs.50 price point that others are offering is it sustainable price point or are theyrunning losses and therefore not sustainable or is there cost structure aligned so that theycan keep offering this price point?Sunil Duggal:Well it all depends what they are putting inside the box. We do not know what they are.Percy PanthakiThere is no right now requirement, legal requirement to state the percentage of juice in thecartons.Sunil Duggal:We are expecting a legislation to happen which will stipulate at least some declaration ofjuice content and that I think would be good for the industry as a whole.Percy PanthakiAnd secondly sir on your retail business can you just run us through the philosophy as itstands today and what are the changes as compared to the plan you had a year back.Sunil Duggal:See obviously the whole landscape has changed, so we need to reorient our retail strategy,so going forward, it is to get into much lower cost real estate and visibility of that is alreadyappearing, so we are looking at Rs.100 a square ft real estate. At the supply end we have Ithink more or less perfected the business model which we believe will work, so the newstore which we will be opening and we do plan to open 10 to 15000 square feet in the nextfew months, should reach store break even almost immediately and I think that is what wehave to validate that can we have stores which can open and reach break even in two tothree months. So overall if we reduce the SGNA and the other costs from current levelswhich we are in a process of doing so, the business model can look far more robust than it islooking today.Percy PanthakiSir, what sales per square feet would you look at for a store, which is let us say about sixmonths old?
Sunil Duggal:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008I would look at in the region depending upon location of Rs 500-1000/square feet/Month.Percy PanthakiOkay and lastly sir your losses on retail this year, will they be curtailed within 17.5 crores asearlier stated?Sunil Duggal:I think more or less, they would not be very off that mark, couple of crores here and there.Percy PanthakiThanks very much sir.Sunil Duggal:Thanks.Nikhil Vora of IDFC SSKI SecuritiesNikhil Vora:Hi Sunil, just one question. We have literally discontinued Vatika Soap. You have beenoff expansion in the foods portfolio also.Sunil Duggal:We did explore a little bit of ready to eat and other stuff but I think our hands are pretty fullin terms of the beverage portfolio.Nikhil Vora:There has been no major product launches except for Dazzle over the last two, threequarters.Sunil Duggal:No we have spent on our shampoo portfolio. We have introduced new variants intoothpaste.Nikhil Vora:Yes variants but no new product launches per se.Sunil Duggal:Chyawanprash Junior which is in the process of being launched, there is a fair amount ofactivity happening in terms of NPDs, you name any category and we have a whole lot ofactivity happening there, even in hair oils, two new hair oils are going to be launched in thisquarter.Nikhil Vora:What I was coming from was you know in earlier sessions, which I was drawing towardswas that we have moved away from NPD or not necessarily extensions so NPDs we movedaway from, we obviously not had success in soap and extensions outside beverage in tofoods business, is the appetite to now take incremental risks on the decline specificallyleading to may be the retail expansion which may get curtailed as we move forward.Sunil Duggal:We treat retail as a very separate part of the business and management is very different, sowe do not confuse the two. We do not see retail at the expense of our core business. Thecore business is something, which we will always be in. Retail is more of a new initiative,so in terms of growth in the core business there is a substantial amount of investmentshappening and that will continue. There is no lack of activity in the NPD front, may be in
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008the last year or two there have been no big wins and visibility is not there but even in termsof product renovation in terms of extension, there has been an immense amount of work.The entire OTC portfolio was revamped recently. We have launched new almond oil. Welaunched a skin purifier, we have completely ramped up the honitus portfolio, and we aregetting a lot of growth from there and I think some of the initiatives which we are seeing onthe ground in personal care particularly would revive growth there, which has been perhapsa little sluggish in the last three or four quarters.Nikhil Vora:Okay. You do not really see any departure from the earlier stated retail expansion that oneis looking at.Sunil Duggal:Retail will be very calibrated. There is a certain amount of burn and bleed which we canaccommodate in the retail business and we begin from that point of view and how tocalibrate the business model so that we can have maximum amount of business with theleast amount of bleed, so I think that is the philosophy behind the retail business. Wecertainly are not going to take out substantial investments from our core business and put into retail and stop the core business of investments, there is no way that will happen becausethe wins which we get from our core business are actually substantially higher, so the retailpart will get fairly calibrated investment. We will have to produce results, which arecommensurate with that.Nikhil Vora:What does it take to pull out from a category itself like soaps, what are the issues youlooked at before you pulled out completely?Sunil Duggal:I think we looked at margins and we looked at the competitive environment and both weresomething which we did not find attractive, but the key drivers of this pull out was themargins which were contracting to as low as 20% levels. We are simply not comfortablebleeding with margins as low as that, so we set our benchmark at around 45 and so whenwe began the soap business it was at the mid 40s, it slipped because of cost pressures to themid 20s and then we kind of lost interest because we did not see any near term upside interms of the whole margin profile.Nikhil Vora:Just lastly Sunil, on the entire growth that one is looking at not just for this quarter but overthe last few quarters as also going forward would you presume that a momentum for theoverall business for <strong>Dabur</strong> could sustain at around 8-9% volume terms or do you think thatis slightly under threat.Sunil Duggal:No I think close to double digit volume growth is what we have been achieving consistentlyand in fact we have been doing a little bit better than that and something which we cancontinue to do., now there may be some changes perhaps the international business will notgo at the same velocity as what we have seen and there is every possibility that there wouldbe some slowdown happening there, but I see definitely the domestic business going a little
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008bit ahead of what we have been doing, so overall you would probably see revenue growthnot very different from what we have today, if we are lucky we will be able to up it a littlebit but I do not see any substantial downsides to this and I think the basic challenges interms of margins has been addressed, second quarter was perhaps the most inflationaryperiod, which we have been through. We see commodity prices correcting themselves. Weare sitting on top of some fairly high prices and if there is some contraction in terms ofcommodity prices that will be to our advantage.Nikhil Vora:There would not be a pass through of all the savings on the quarter.Sunil Duggal:There could be but prices tend to be sticky and at least there would not be any MRPreductions I can guarantee, whether they would be higher lubrication of trade or freebies,well let us wait and watch, lot will depend upon I think the context of the competition butwe believe we can sit on higher margins at least for the domestic business in the third andfourth quarters than what we have seen in at least the second quarter which was not in itselfa bad quarter from the margin point of view.Nikhil Vora:Okay. Thanks Sunil and all the best.Aniruddha Joshi of Anand RathiAniruddha Joshi:Hello Mr. Duggal. Congratulations for excellent set of numbers.Sunil Duggal:Thank you very much.Aniruddha Joshi:Sir, just wanted to check with you, have you started seeing any down trading; means has theslowdown started in the industry, what is your experience?Sunil Duggal:Not visible. You know there are two elements with this business, there is rural and there isurban. The rural growth story remains completely intact; in fact it seems to haveaccelerated a little bit. Urban, well there seems to be some fallout in terms of modern trade.We are seeing substantially lower off take of modern trade because quite frankly many ofthese guys are not paying up, so we have stopped supplies, so that impacts growth to someextent, but I do not believe that demand has shrunk, but modern trade which was driving alot of urban growth has now begun to unravel a bit and we are seeing a lot of change nowgetting in to default and making very slow payments, so we are obviously calibrating oursupplies to them quite a bit.Aniruddha Joshi:Okay, but we do not see any slowdown currently happening despite income levels acrossthe industries coming down?Sunil Duggal:No not yet. You know, we do not operate in the luxury segment which is probably the firstone to get impacted, it will be the very high-end cosmetics or whatever would get impacted
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008but everyday products which are priced at popular price points there is no visible sign ofany consumer, lack of consumer demand, whether it is urban or rural, like I say rural seemsto have actually come a little bit better, urban seems to be fairly steady but near term we dosee some pressures because modern trade off take has come down but we believe thetraditional trade should take up the slack.Aniruddha Joshi:Okay, so we do not see major trade going forward.Sunil Duggal:I do not think so, but having said that you never know how things will fan out, it is theeconomic situation, whether it will gravitate towards lower off take for everydayconsumables, I personally think not but then I could be wrong.Aniruddha Joshi:Okay fine, very lastly, you know almost all the raw materials prices have started correcting,so do you see we continue taking price hikes.Sunil Duggal:I do not expect any price hikes in the next six months.Aniruddha Joshi:No price hike in the next six months.Sunil Duggal:I do not expect so, may be there will be the odd product which has got a spike up and it is inmaterial cost but that would be an exception, I do not have any visibility of that, but I do notsee any price shrinkage either. I think we will be able to sit on the current prices..Aniruddha Joshi:Sir, but we are the only company who has taken least price hikes, be it Lever or Nestle.Sunil Duggal:That is right. I think we and Colgate, I think Colgate has taken a very moderate price hike.Aniruddha Joshi:Yes, we and Colgate are the only two ones, right. So, despite that our volume growth is notvery, very strong.Sunil Duggal:It comes around 11-12%, 12% volume growth is perhaps the highest, which you have seenin FMCG this year.Aniruddha Joshi:Like others have also been also maintaining somewhere around 8 to 10% volume growthdespite taking huge price hikes, so we have not taken price hikes, but still our volumegrowth is not substantially higher, so any reason, means are we facing problems to increaseprices?Sunil Duggal:No I think if you look at our gross margins they have been practically intact, so we have notseen erosion because of any inflation. I think the volume growth of 10-12% for coredomestic business is not the highest we have ever seen, so you might argue that with lowerprices we should have seen a higher volume growth but I think this is also fairly decentperformance. We have been able to manage margins despite moderate price increases,
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008perhaps it is indicative that the demand of our products will not slacken, I would have beenlittle bit more uncomfortable as we have been sitting on top of 10-12% price increasesbecause then I may have a situation in which demand would erode, so perhaps in our case itwould not happen with that 5% increase.Aniruddha Joshi:Are we happy with around 10-12% volume growth or we would like to draw it much higherspace means what would be our internal expectations?Sunil Duggal:I think, let us put it this way, I am happy with the growth in aggregate terms, I think weneed to improve performance in certain components of our business, some haveoutperformed, some have underperformed. We need to raise the bar for the underperformers and maintain the growth for the out performers as the overall growth goes up. Ifyou do a quick scan you see our international business and some of the healthcare portfoliosdoing extremely well, some others not doing so well, so we need to just pick up and plan abit.Aniruddha Joshi:Okay, fine, we were trying to do something about our CHD business, probably on thedistribution network as well, so there were some initiatives which were supposed to betaken, so have you started on that?Sunil Duggal:Yes. This has shown a very good result. We have substantially improved our OTCportfolio both in terms of product as well as in terms of distribution through chemists, so wenow have a coverage of around 120000 chemists and a very high-quality coverage, whichhas driven the growth of those OTC products very substantially, so I think that part hasworked. What we perhaps need to do now is to build more scale in to this business.Aniruddha Joshi:Okay fine. My last question. How is our performance of cooling oil?Sunil Duggal:Cooling oil is a float product. So, I think we would have got 3-4 crores of sale but wehaven’t really spent much money on it this year. One of the reasons why we did not spendmuch money this year was that it was a very funny summer, it had periods of heat and coldand not very conducive to cooling oil usage so we decided not to invest behind the brandthis year, precious little was spent, in fact we did not spend any money above the line. It isnot something, which we are still devoting a lot of time and attention to because I think thewhole focus in CHD is now shifting towards OTC and Thanda Tail does not belong in thatcategory.Aniruddha Joshi:Okay sir. Thank you very much.Richard Liu of JM FinancialRichard Liu:Good evening Mr. Duggal.
Sunil Duggal:Good evening Richard.<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Richard Liu:Sir, my question pertains to the International Business really. I remember discussing withyou at the time of the first quarter result that we had faced some margin erosion that timewhich we said would largely get corrected under second quarter onwards with the pricehike. As you know that price hike would have come through, but if one looks at the overallsales growth Q1 and Q2 is largely in line at 40% but I presume with larger price hike in theQ2 but that does this imply that volume growth has slowed quarter on quarter.Sunil Duggal:No. Let us say the MENA region which is the driver of our international business whichgrew at 55%, we did a quick check and price part is 16 the volume is 39, let us make it 40,obviously the price increases in the International Business have been considerably higher,that is on the back of substantially higher inflation levels which we have faced. So ourmargin growth has lagged behind topline growth, if I am not mistaken our margin growthwould be around 30% as against topline of around 40-41%. But, I think, like in <strong>India</strong>, webelieve that definitely from Q4 there would be substantial margin expansion happeningconsequent to the fall in the commodity prices. We may not see too much evidence of thatin the third.\I am not worried about margin in the international business. I think, thechallenge is can we continue to manage the same, very, very high pace of growth. Again, ifyou do a scan of our international business it literally comes in two buckets, there isMENA, which is around 80% of the business and then there is South Asia. MENA hasperformed exceedingly well 55% growth. South Asia has lagged considerably behind. Thegrowth is in double digits and the reason for that, is, one Pakistan has unraveled quite a bit.Nepal had this problem, which happened in September, it affected Nepal. Nepal is a bigmarket for us. Bangladesh has done very well but then it is too small to really make achange. Now if we are able to get South Asia back on track while I am not sure aboutPakistan because the economic situation there remains very grim, but Nepal shouldcertainly improve. Even if we have some slackening of growth in MENA we will go fast.You know business is growing at 40% and it is hard to expect margin growth also to growat 40% so I don’t mind some margin erosion.Richard Liu:But what could be the volume growth like Q1 and Q2 in the international business?Sunil Duggal:Again, it would be around two-thirds volume and one-third price, not very different fromdomestic.Richard Liu:This is across both the quarters.Sunil Duggal:This is across both the quarters. I do not see any significant difference. Is there anydifference between first and second quarter? I do not think so, may be there is a marginaldifference, but nothing significant. Lot of volume growth has happened basically on
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008account of opening up of new geographies, substantial expansion of business in Egypt andNigeria, has all been volume driven.Richard Liu:Sure. Sir, the next question is I just wanted to get your sense of the new juice offering thatParle has come out with. I mean the price point seems to be on the higher side. Is there adifference in the nature of the product in terms of juice content etc?Sunil Duggal:I do not think so. I really don’t understand their marketing plans and I did not quite franklyanalyze it closely but I think it is a juice like ours or Tropicana, so the pricing strategy is, ifyou produce in <strong>India</strong> and you want to sell orange juice, actually that is what they should beselling at. They should be selling at Rs.100 a litre, because only then you would getadequate amount of margins, which are sustainable. We are able to sell at Rs. 80 because ofthe Nepal piece, but all imported juice and imported cartons means that your price actuallyshould be Rs 100 if you have to manufacture it domestically. That is one of the reasonswhy we have not shifted manufacturing to the <strong>India</strong> market, so then we will have to priceour product also at Rs. 100 a litre.Richard Liu:Sure. Now just taking further from one of the questions earlier with regard to Nepal, Imean the political scenario there not being very encouraging and also coupled with the factthe product’s perishable nature and therefore you may not be able to keep a larger stockcover, are we likely to probably face that situation in terms of cost as far as the juicesegment is concerned then?Sunil Duggal:No. I think while we have been taking significant steps to indiginize the contentparticularly in terms of the concentrate, there are some flavors, which would remain inNepal because there is just no adequate amount of production of quality available in <strong>India</strong>like orange or mixed fruit or cranberry or few others, so something like 50% ofmanufacturing at least near term would remain in Nepal but especially from the point ofview of the Prism pack and those particular packaging configurations are not made by Tetrain <strong>India</strong>, but we are encouraging Tetra to make those packaging options in <strong>India</strong> in whichcase even if we were to shift manufacturing entirely to <strong>India</strong> once the packaging is madehere then the margin erosion may not be very significant. So there are ways around Nepaland if anything the future obviously lies in manufacturing out here but next couple of yearsat least we will have to continue substantial manufacturing in Nepal.Richard Liu:But what about the flavor issues etc.Sunil Duggal:Like I said there are <strong>India</strong>n flavors, there is mango, there is guava, there is grape etc, thereare couples of other flavors, pineapple which are coming out of <strong>India</strong> produce, all those arenow made in Newai in our Rajasthan plant. The imported products particularly orangethere have no substitute in <strong>India</strong>.
Richard Liu:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008But I would presume that orange is the largest chunk amongst all.Sunil Duggal:Well apple is big, that is also imported unfortunately. Apple and orange are big let us say itaround 50% is at this point in time does not make sense to make in <strong>India</strong>, so we have 50%or 55% depending upon the mix Nepal content in our portfolio.Richard Liu:So what could be the contingency plan in case such incident happens in Nepal again, I meanconsidering the fact that you cannot keep large stock covers.Sunil Duggal:Let us put it this way. Disruption which is of a temporary nature means that we can shift,we are building capacities which are purely surplus to shift the whole manufacturing to<strong>India</strong>, so we will incur that temporary bleed but at least the business continuity will bemaintained but that is the near term contingency over the next couple of years but then weare seeing higher level of indigenization as far as packing material is concerned, also dutiesare coming down in agri-products as per wage agreements, so <strong>India</strong> manufacturing willincreasingly become attractive and we will shift manufacturing progressively here, that iswhat the game plan is.Richard Liu:The next thing is with regard to gross profit margin erosion, the amount of erosion you hadis one of the lowest in the sector in this particular quarter at least while we have seen amuch larger amount of gross profit margin erosion even for companies which are in similarlines of business like yours, I mean to the extent you can disclose I mean what is differentabout the raw material strategy in <strong>Dabur</strong> which has lead to this kind of up rise surprise.Sunil Duggal:I think I would give a lot of credit to our purchase people who once again have risen to theoccasion and managed cost extremely well, but also we have been proactive in priceincreases and we have mapped out whole input cost scenario and taken steps to mitigate itthrough price increases, I think these have come at the right time, they have served toneutralize the raw material impact but a lot of good work has been done by purchase.Richard Liu:Sure but if one excludes that for the time being I mean accounting for volume growth itseems that the raw material price inflation impact for the quarter was only in the range ofaround 6 to 7%, which is pretty low in comparison to what we saw in most othercompanies.Sunil Duggal:If we got lets say a soap or a hair oil company then that would have been much worse it isperhaps little bit connected to the peculiar product mix we have which has a large numberof agri-commodities etc., which did not have the same level of inflation as many others. Soit is perhaps a question of mix but we did adopt very aggressive hedging strategies in theearly part of this year and we went long on many commodities and that helped ussubstantially managing costs.
Richard Liu:Will that backfire now?<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Sunil Duggal:No I think all our positions are exhausted in fact they were exhausted around August butthey helped us in the first five months of the year so now we are really buying spot we arenot taking any positions of any substantial nature.Richard Liu:Okay. Thank you. Thanks a ton.Hemant of Enam SecuritiesHemant:Hi good evening Sunil, this is Hemant here. Just a quick question and follow-up question infact on what you have mentioned earlier, I wanted to get some clarification on theConsumer Health Division wherein I just noticed that your margins in this particularsegment despite the robust top line growth have really not improved, could you give an ideaas to what is really happening on that particular front and can we see some ease out goingahead.Rajan Varma:Well, with the growth we have to put in some extra investments on to our ad pro in thisperiod and I think going ahead we s easing of this ad pro expenditures coming back to thenormal margin that we expect at the end of year.Hemant:What would be the normal margin level if I may ask?Sunil Duggal: Let me give you some numbers here. Our gross margin here was 62% last year and 60%this year so small erosion there but the big gain has been in A&P that has been 700 bps upvis-à-vis last year which has led to almost a flat net contribution growth, so this erosionisentirely attributable to A&P.Hemant:All right, fair enough. In terms of retail, can you give us a highlight as to what is thecurrent role out plan? Given the fact that real estate is coming at a cheaper value prices.Sunil Duggal:To be very honest, at this point in time we are just scouting around for stores, we have notclosed any deals, it is a very volatile environment. There is a lot of churn happening in realestate, to tell you all about that. We want to have established businesses which haveenduring footfalls and some longetivity in terms of profile and till we do that we won’t startspending a substantial amount of Capex on the stores etc., so we are waiting for this wholeforks’ to come down, the realty space is at this moment is in a very shark-infested waters,so you are treading with a great deal of area but having said that we would like to openaround 15000 sq. feet of fresh retail space over the next six months, whether we will be ableto do that I am not too sure but that is what the intent is because we already have CapExsitting in our warehouses which is around 15000 sq feet, but we need (a) space which iseconomical and (b) space which is of enduring quality.
Hemant:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008In terms of Capex, I just noticed that your gross block has really gone up in ‘09 for the sixmonths in questions. I was wondering could you give us an idea as to where this has gone,has it gone to Nepal and what is the quantum which has gone to retail on a consolidatedbasis and what can we look forward for the next six months going ahead.Rajan Varma:Essentially, large chunk of this has gone into new office block building that we are buildingin Gurgaon and some of the other properties that we have recently acquired in Delhi, so alarge chunk of that has gone in there, retail is different and does not have very major Capexthat has gone in during this period. We had some normal expenditure going in our units inUttaranchal and Baddi but the biggest chunk has been for the Gurgaon properties and theother properties we have acquired in Delhi.Hemant:How are we on the utilization front? Do we need to substantially invest at this particularstage given the current growth rate? I am talking about domestic FMCG.Rajan Varma:Yes, we are about to put in a plan, future expansion plan as we move ahead taking the nextfew years into account which would likely to be approved by the Board shortly and we willtalk about it as and when this is approved.Sunil Duggal:Basically, you are aware that excise window will shut in March 2010, so we need to avail ofthis excise window and income tax benefits consequent to that. We will need to spend afairly high Capex next fiscal, some of it will be done this year but most of it will be actuallycapitalized next year, which will be in the region of 100 to 120 odd crores, may be little bitmore depending upon how cost moves, so that would be the only big ticket Capex whichyou would see from our side so that would ensure that we have fiscal benefits going up to2018 or thereabouts.Hemant:Just one final clarification. You mentioned that the velocity of sales in retail was around Rs5000 per sq feet I guess that is for the weekly you are talking about.Sunil Duggal:Velocities of 500 to 1000 that would be the targeted rate.Hemant:Oh, sorry for the month, okay fine thank you.Hozefa Topiwalla of Morgan StanleyHozefa Topiwalla:Hi Sunil good evening. How are you?Sunil Duggal:Hi, how are you?Hozefa Topiwalla:Pretty well. Just a couple of questions, the first one is what is the volume growth in hairoils and what is the volume growth in shampoo for the quarter?
Sunil Duggal:Let us take shampoos. Shampoos what will be the split.<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Saibal Sengupta:The overall shampoo volume value is almost similar.Sunil Duggal:The reason is obvious that it is Re.1 sachet configurations which drives volume growth..Sengupta: Overall in the hair oil portfolio, I think the split as I said earlier is around 40and 60, 40 % is for price and 60% is the volume.Sunil Duggal:This is the hair oil portfolio. As we mentioned, shampoos has witnessed almost no priceincrease.Hozefa Topiwalla:No price increases. 70% is sachet.Sunil Duggal:75% is sachet and continues at Re.1.Hozefa Topiwalla:I don’t know whether you have this right now, if there is any input cost index what will bethe YOY increase in index for you all this quarter compared to the possible quarter in theprevious year approximately.Sunil Duggal: 6%.Hozefa Topiwalla:There is only 6% increase.Sunil Duggal:In terms of raw and packing, material cost.Hozefa Topiwalla:If you look at the first month in this quarter has there been any fall already, I know it is tooearly to say that but………Sunil Duggal:I think the fall will really happen from November. October is probably residual carryforward increase. What we are doing is we are buying at a much lower rate in October thanwe did in previous months but the consumption is actually of the higher price product. Ithink going by our inventories the older price products would be largely exhausted by endof this month or may be early November so then we will be consuming the lower pricestock which would reflect in higher gross margins, the mix remaining the same obviously.Hozefa Topiwalla:Just to get a better understanding on this input cost which commodities have you witnessedthe maximum inflation on a YOY basis this quarter.Sunil Duggal:First commodity was LLP -light liquid parafine, which is again a petroleum derivative.Coconut oil was the second. Honey was big, t some oils, not all but mustard oil was a bigone, so these are the big areas where we had inflation.
Hozefa Topiwalla:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Since your input cost index will be up only 6% YOY which means that you have actuallywitnessed deflation and few other input costs. Which category actually witnessed deflationapart from sugar?Sunil Duggal:Things like lami-tubes, we paid lower price, sleeves we paid lower price, cardboard boxers,lot of paper stuffs were lower, cardboard boxes, cartons.Hozefa Topiwalla:Okay these are the ones right. Okay, on your international business, the volatility in thegrowth rates has been quite high in the past. From our business planning perspective tomanage this kind of volatility in growth how do you really plan this growth out and howshould we look at this growth and how should we focus growth and how predictable is thegrowth in these markets.Sunil Duggal:How predictable, that is a good question. It is less predictable than the growth in thedomestic business because we are looking at far-flung geographies, we are looking atfeeding markets sometimes, things work very well sometimes they don’t, but what we havedone in terms of managing the whole supply side is to setup a very large manufacturingplant now fully commissioned in UAE. That is something, which would service us at leastfor the next couple of years without any major expansion. We do have supply issues ofserious nature in Egypt where the growth has been well ahead of our estimates butfortunately most of the markets we have been able to manage we put in the capacities at theright time just when the business was beginning to peak, but there is unpredictability andtherefore we always tend to be a little conservative in our forecasting and I certainly wouldnot forecast 55% growth in MENA for the next year even though we will strive for it.Hozefa Topiwalla:How do you manage the growth when it actually comes to you?Sunil Duggal:How do we manage, because our plants are scalable in terms of manufacturing? We do putin much higher capacities than what current demand is. Typically, if the current demand is60, we put in capacities of 100, because it does not cost you a lot of money to put in extralines in terms of manufacturing or particularly in terms of packaging, we have CapEx lightbusinesses and we are quite happy to run factories at 50% to 60% capacity utilizationbecause we need a lot of stock to meet unforeseen demand.Hozefa Topiwalla:Sir, if we look at two geographies. One is MENA and Bangladesh where you have beenpresent for a reasonable amount of time now and there has been very strong growth thisquarter.Sunil Duggal:In MENA yes, in Bangladesh, but then you know MENA growth has been on top of earlierhigh growth. Bangladesh has been on a much lower base. Last 2-3years we probably didnot grow at all there . So we have enough capacity in Bangladesh, but MENA capacity, theRAK plant, which we commissioned in March this year was quite frankly timed to
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008perfection. If the plant has not been there we would have perhaps been able to grow at 20%or even less than that but the businesses are scalable. We did not expect the plant to operateat 110% capacity. The plant was designed for a two-shift operation. We are running threeshifts. We have already kind of exhausted current capacities and we are quickly puttingnew capacities literally four, five months after the plant was commissioned, but all thesethings are something, which we can do at short notice because they do not involve hightechnology or high capexes.Hozefa Topiwalla:What would you say are the key drivers for growth in MENA at the moment?Sunil Duggal:It is basically very high investments. A&P there is around 21% in our brands which arepropelling a lot of consumer demand from the entire Arabic world and also now from sub-Saharan, Nigeria etc., so we are investing in our brands particularly in the Vatika franchiseand going forward towards oral care and toothpaste, Meswak particularly and that iscreating a huge amount of consumer pull, so this is basically a pull strategy because it isvery hard to penetrate market likes Morocco or Algeria through distribution expansion.They are fairly primitive in terms of their distribution infrastructure there. So what we havediscovered is to establish media platforms, which are Arabic in nature, which are panArabic in terms of spread. It creates awareness and pull for our products and then thedistribution begins to build itself.Hozefa Topiwalla:So these are largely to wholesalers.Sunil Duggal:We have very little direct retailing there apart from the GCC countries, Singapore.Hozefa Topiwalla:How much of growth do you think is coming from adding just new distributors or howmuch of growth is coming from the same distributors, if retail shows no growth?Sunil Duggal:We have appointed a huge number of new distributors. Let us say we have always adistributor in Morocco and it was a market which rarely got say 2-3 crores of sales, last twoyears we begin to advertise heavily, not to Morocco but in the pan Arabic channels andsuddenly we are seeing the market grow to 10-15 crores, so this is basically what ishappening that investments are yielding results and as and when we get in to higher scale ofbusiness we will further reinforce our distribution and build more quality in to it, but it isnot that distribution is driving our business there, especially in the more remote areas ofMENA.Hozefa Topiwalla:How much credit do you typically give to your distributors in the MENA region.Sunil Duggal:It is pretty high. In GCC, it is 90 days, in the more risky areas it is 30 days, but SaudiArabia and all these very established geographies we are locked in to fairly high credits, sotherefore the working capital requirements in MENA are much higher than the domestic
<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008business, but it is all very secure, so there is no risk and we have never lost money ininternational business.Hozefa Topiwalla:Then coming to the statement that you mentioned earlier on modern trade that is reallyslowing down. Can you just share some numbers on your home care business and you foodbusinesses, how much would the modern trade contribute to your home care and foodbusiness turnover?Sunil Duggal: Home care around 25%,and food is around 20%.Hozefa Topiwalla: And compared to the overall company’s turnover of about 4-5%.Sunil Duggal: It is around 6-5%Hozefa Topiwalla:Do you think you will have to roll back your plans on home care production expansiongiven that you are less optimistic with modern trade at the moment?Sunil Duggal:To be very frank I am happier in a traditional trade environment. I think, that is where weplay to our strengths. It is very easy for anybody to penetrate modern trade. You get intomodern trade, you do deals, you lubricate the systems, you are on the shelves. So, we playto our strengths and those are traditional trade that is the reason why we don’t see homecare as being a very, very strong vertical of ours, it is continues to be health and personalcare.Hozefa Topiwalla:How about food and fruit juices?Sunil Duggal:Juices is and will be fairly dependent upon modern trade but I think our growth reallywould come from traditional trade more than modern trade and I don’t see any major shifthappening towards modern trade near term. I think what is happening on the ground hasalways validated my position that <strong>India</strong> is and will remain a traditional trade market for avery, very long time to come especially in FMCG categories may be different in apparel orelectronics or whatever but. Our categories are very, very strongly dominated by traditionaltrade, I don’t see that mechanics changing very quickly.Hozefa Topiwalla:Last question on retail business. Is there an annual burn rate in your mind that you want tocap to because of the environment?Sunil Duggal:We had put a cap of around 20 crores and we will maintain that cap and we will try not togo below that. Next year is actually less than that. I won’t share the numbers because westill have to crystalize those but it would be definitely below this.Hozefa Topiwalla:Just coming to the point you mentioned earlier Rs 1000 sq feet per month.
Sunil Duggal:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008I am seeing a range of Rs. 500-1000 depending upon the space.Hozefa Topiwalla:But if I recall correctly its about 12 to 18 months ago, before you began your retail businessin terms of the B plan you put out you are basically targeting between Rs.20 and 25000 sqfeet per year.Sunil Duggal:That was a steady state, not the start up. What I am talking about is the initial velocity notthe terminal velocity, which would be much higher than this. Even in our original plan, ourinitial velocity was more in the region of 1250 of course we never reached 1250.Hozefa Topiwalla:Of course environment is bad and real estate cost is high etc., but in terms of the key matrixthat you would typically want to measure whether the business is going in the rightdirection or not. If you were to take a mid year review, where do you think you stand in theretail business in terms of what your objectives were and viability of the business model.Sunil Duggal:I think the business model is viable if it is totally re-engineered. That means lower realestate cost, sustenance of current margins and little bit higher velocity but I think the key isreal estate cost and managing our overheads much better so the matrix which I looked whenI see the retail piece is how close are we to store break even, the moment we reach storebreak even I think our problems are solved to a very substantial extent, but to get to storebreak even is a long and a hard road and that is what we are presently engaged in to managethe business model to reach the store break even in as quick a time as possible.Hozefa Topiwalla:Should we expect more roll out or should we expect that you would actually make themodel more viable before you actually expand in to it.Sunil Duggal:See what I will ask the guys who have done this business is, before you open any store, giveme a business plan for store break even and I will dissect that plan. If I am satisfied, thatthe store will break even in a very short period of time, weeks rather than months, then Iwill give the green signal for store opening.Hozefa Topiwalla:People have been asking this question of slow down in consumer demand what ishappening globally etc. In the previous cycles that you have seen where the economyslowed down what has been your experience of how <strong>Dabur</strong> managed or how yourbusinesses demonstrated revenue growth.Sunil Duggal:You all know, you have been in this business for long, we see almost an inverse correlationbetween business cycles and FMCG demand, so there is no pattern and only a very braveperson would stick his neck out and predict. Now which way it will pan out, it is very hardto predict. I think, we just keep eye on where are the categories heading.
Hozefa Topiwalla:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008In terms of competitive ad spends and competitive share of voice, how do you think thatwould typically span out over the next two years given the outlook and environment.Sunil Duggal:Which context are you speaking from?Hozefa Topiwalla:There are two contexts. One is will the advertising rates fall in your view and two is thatwill you actually see a fall in ad cost to sales ratio for the sectors as a whole and including<strong>Dabur</strong>.Sunil Duggal:Right on both counts. Very clearly we are seeing softening of ad rates. We are seeingchannels to come forward and doing deals far more actively than there was six months ago,so consequently if there is a very sharp reduction in the ad rates, and even if there is sometapering of consumer demand the ad to sale ratio should work in our favor. We do notexpect A&P ratios to actually go down at least, it will probably remain constant at this 13-14% level, but perhaps you can get more value out of Re.1.Hozefa Topiwalla:The reason I asked this question is that if you look at the cycle in the last three or four yearsbecause of ad spends hardening and general share of voice for consumer company isdropping because there is so much of clutter, the ad spent to sales ratio for the whole sectorwent up by about 300 to 400 basis points. You think that whole trend can reverse at all?Sunil Duggal:No I don’t think so. I think the cost of launches is not reducing so you still need to spend, Ican’t speak about others but I don’t see our A to S ratio shrinking anyway below 13%, it ismore like 14 today that is almost hard wired into our business model. It will take a lot ofchange to alter these ratios.Hozefa Topiwalla:So, if you actually witness dramatic slow down in your revenue growth, what are you goingto do in terms of managing the overall business. What is going to be the priority to managethe business?Sunil Duggal:I would seek to manage costs but if I see a slowdown in terms of top line it does notnecessarily have to have an impact on my margins. My margins could remain intact even inscenario of low top line growth because I would still take the ratios pretty similarly. Whatwill happen if there is margin erosion, which I don’t see any possibility off, then I willreduce perhaps A&P and other costs to some extent if it is absolutely necessary.Hozefa Topiwalla:Thanks a ton Sunil. Happy Diwali to the team as well.Vivek Maheshwari of CLSAVivek Maheshwari:Hi Sunil.Sunil Duggal:Hi Vivek.
Vivek Maheshwari:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Just quick questions one on the foods business, we have seen a modest growth and youanswered already the reasons but for the domestic business the margins they have grown by48% and you know the absolute margin percentage have gone up by 630 basis points. So,what has been the reason for this margin improvement and even that is the case forconsolidated business also.Rajan Varma:Apart from A&P spends I think the other thing is we have also seen a major benefit ofintegration flowing into the business since last time and therefore that overall improved themargins from an overall point of view and that I think we have been talking about thisimprovement since we have integrated this into the CCD business, but I think this is a resultof that integration out here.Sunil Duggal:There are two things here. There has been a margin upside on account of A&P and salesand distribution, but there has been an erosion which is consequent to the rupee issue but tosome extent that had been mitigated by lower raw material prices which have prevailedglobally for food products. So it is a very complex margin environment here. We havebeen hurt pretty badly by the rupee. What is fortunately has been mitigated by lower rawmaterial costs in dollar terms at source and lower A&P and lower S&M.Vivek Maheshwari:Sure. Going forward I mean once you are done with your all the launches and newlaunches and stabilize what is the target margin in case of food portfolio that you seebecause you know in the base quarter it was like 15%, now it is at 21%, so what is the longterm maintainable margins in foods.Sunil Duggal:Near term. I won’t talk long term here, but near time we would look at EBIT’s in theregion of 15%, 21% is abnormality. I think, we will need to spend little more on the A&Pto drive the portfolio with new launches coming up. We have got some very interestingnew launch ideas, which will require a fair amount of investment.Vivek Maheshwari:Okay sure and my last question is you mentioned some time back that since the excisewindow will get over by 2010 so you would be spending something like 100 to 120 croresover the next two years, any plan that has been formed up in terms of what product it isgoing to be or.Sunil Duggal:Everything has been planned up the last SKU what will be made, when it will be made,where it will be made, land acquisition is taking place, everything is going like clockworkbecause if we have to commission a very large plant in the next 17 months or so, we need tomove now, so all that is in place.Vivek Maheshwari:Any detail that you can share in terms of what products it would be?
Sunil Duggal:<strong>Dabur</strong> <strong>India</strong> <strong>Limited</strong> Q2/H1Earnings Conference CallOctober 31 st , 2008Yes. I think it would have the classical generic products of CHD; it would have some mixof personal care products, perhaps not too much health supplements, so that is not reallysignificant, just a plant which will produce efficiently. Again 95% of our production wouldbe free of excise, the longer term rationale for this plant is actually not excise, which will beto a substantial extent indicated by the GST regime. It is really the income tax benefitsunder section 80 (I), which makes this plants existence necessary.Vivek Maheshwari:Okay sure that is it from me sir. Thank you so much.Mrs. Gagan Ahluwalia: Thank you every one for participating in this conference call. As always the transcript andweb cast of this call will be put up on our website. With this, we end this call. Thank youvery much and have a great evening.