Ladies and gentlemen, good day and welcome to the Q2 Results Investor Conference Call of Dabur India Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Gagan Ahluwalia. Thank you, and over to you.
Thank you, Stanford. Good afternoon, ladies and gentlemen. On behalf of the management of Dabur India Limited, I welcome you to this conference call pertaining to the results for the quarter ended 30th September 2020. I have here with me Mr. Mohit Malhotra, Chief Executive Officer, Dabur India Limited, Mr. Lalit Malik, Chief Financial Officer, Mr. Ashok Jain, Senior Vice President, Finance and Company Secretary, and Mr. Ankush Jain, Head Financial Planning and Analysis. We will now start with an overview of the company's performance by Mr. Malhotra, followed by a Q&A session. I now request Mr. Mohit Malhotra to start the presentation. Thank you.
Thank you, Gagan. Good afternoon, ladies and gentlemen. I hope all of you and your families are staying safe and healthy during these tough times. Let me also wish you a very happy Diwali to all of you and a great festive season ahead. Our war against COVID is not yet over. My heart goes out to all those who have been affected by the virus. I would like to express my deepest gratitude to the frontline coronavirus warriors, our police personnel, healthcare workers, and sanitization workers for their selfless service towards keeping us all safe during these trying times. Moments of extraordinary challenge like these test our collective will. I'm proud and inspired by the way the entire extended Dabur family, from factories to supply chain to the frontline sales force, have risen to this challenge across the globe.
I would like to thank them for their hard work, commitment, and invaluable contributions, which have helped us weather the COVID storm and emerge even stronger. They are our true heroes. COVID has entirely changed the business landscape around the globe, opening up newer categories and challenges while dismantling some of the established ones. As I've often said, a crisis is not to be wasted. It is, in fact, an opportunity to work harder, strengthen the business with new capabilities, beliefs, and innovations to emerge stronger and even further entrench our leadership position in the marketplace. This is exactly what we did in COVID times. We have transformed ourselves as an organization, becoming more agile, nimble, aggressive, and fearless. We have also enhanced our risk-taking ability, encouraging our employees to become more entrepreneurial and self-driven.
This crisis has propelled the company towards a journey wherein we have accelerated the pace of innovation, retooled our distribution, increased digitization across value chain, enhanced our efficiency and productivity, and brought in a complete cultural change within the company. We have launched multiple new products since the advent of COVID, in spite of restrictions on supply chain and limited availability of labor and raw materials. I can say that this has been the inflection point for the company, which has brought in enduring changes in the way we operate. Our strategic business transformation exercise has helped us to develop and implement growth strategies in the core business areas to successfully address the emerging challenges and deliver a robust top-line growth accompanied by healthy profitability during the quarter. We saw growth of 13.7% in consolidated revenue from operations.
Our FMCG business recorded a stellar growth of 20%, backed by a volume growth of 16.8%. Operating profit increased by 16.3%, and consolidated profit after tax reported a growth of 19.5%. Riding the tailwind of immunity products and bolstered with the new innovative launches, the healthcare portfolio recorded a growth of around 50%. This was driven by a strong growth in our power brands and healthcare portfolio and supported by creative marketing campaigns, localized sales activations, and sustained investments. The health supplement business grew by 70%, led by 2x surge in sales of Chyawanprash, a double-digit growth in Honey. OTC business reported a strong growth of 56% on back of robust performance of Lal Tail and the NPDs like health juices, health drops, and other Ayurvedic products.
The ethical business also performed well, reporting a growth of 26% on back of strong demand for immunity-boosting products, contextual activations, visibility drives in chemist channels, and initiatives like Immunity at Doorstep. Within HPC portfolio, oral care recorded an industry-leading growth of 24.2%. Dabur Red Paste, our flagship brand, continued its growth momentum along with the strong performance of Meswak and Babool franchise. Our market share in toothpaste category witnessed a 90-basis point gain vis-a-vis last year. Our Lal Dant Manjan also witnessed a strong growth of 30% during the quarter. Hair oils reported a marginal decline, primarily on account of lower sales in the enterprise business, particularly CSD business, which continues to be impacted. Ex enterprise, the sales of hair oils was flattish. Our flanker brand strategy remains intact with the launch of Badam Amla and Amla Aloe Vera. The shampoo portfolio recorded a growth of 17.8%
Our market share in shampoo business increased by 80 basis points, touching 6.4%. Our focus on increasing bottle salience has yielded results with a strong surge seen in the quarter. Vatika shampoo reported a good uptake on e-commerce platform as well. Home care reported a muted performance during the quarter due to discretionary nature of this portfolio. The air fresheners and mosquito repellent cream were under some pressure. Our market shares in both the categories saw an uptake. In air fresheners, Odonil recorded an increase of 60 basis point in market share, and in mosquito repellent cream category, Odomos recorded an improvement of 80 basis points. The recently launched home hygiene portfolio under Dabur Sanitize and Dabur Dazzl brands have registered a strong performance.
Skincare portfolio witnessed a growth of 38%, driven by strong performance of Dabur Sanitize range, which includes hand sanitizers, antiseptic liquids, and soaps, along with Fem hand washes portfolio. Albeit the traditional portfolio of HPC bleaches declined by around 12%. With the HoReCa and CSD businesses continuing to operate at lower levels, the food business reported a decline of 3.8%. Ex-HoReCa and CSD, the domestic foods business saw a growth of 8.5%. The in-home domestic business has sharply rebound while the out-of-home portfolio has seen sequential recovery month on month. Our market share in J&N category saw an increase of 170 basis points, reaching to a market share of 61.5%. Our culinary portfolio under the Hommade brand recorded a growth of 12%. Domestic business for culinary ex-HoReCa and CSD has shown a strong growth of 45%.
The new products launched under the foods portfolio were Réal Mango, Réal Frappé Milkshakes, which are also witnessing encouraging response from the market. Among the channels, e-commerce was an outperformer with a growth of more than 200%. This channel is now contributing to around 6% of sales vis-à-vis 2% last year. We were able to capture the increasing preference for online purchases among the consumers and increase our market shares on e-commerce platforms across categories. International business recorded a muted growth of 5.5% during the quarter. While MENA region continues to face macroeconomic headwinds due to lower crude prices and outward movement of expats, we saw strong double-digit growth in Turkey, North America, and SAARC businesses. New products were launched in haircare, skincare, hygiene categories. The business reported an increase in operating margins aided by saving initiatives across the board.
We believe innovation is the cornerstone of our strategy to deliver robust growth and tap the emerging opportunities. During the quarter, we extended our portfolio with the launch of Dabur Honey Immunity range, Tulsi and Ashwagandha variants, Dabur Herb'l Clove toothpaste in South, Amla Aloe Vera Hair Oil, Dabur Badam Amla Hair Oil, low-calorie juices, and Réal Apple Mini. We also entered new categories with launch of single herb, Dabur Vedic Suraksha Tea, Ayurvedic Nasal Drops, along with chutneys, pickles range in the culinary portfolio. E-commerce continues to be a driver of growth, and we fortified it with the recent e-com first brand launches of Dabur Himalayan Apple Cider Vinegar, baby range, and cold-pressed mustard oil.
Going forward, we intend to drive our business by investing aggressively behind our brands, staying focused on health and hygiene, driving innovation and renovation across our portfolio, leveraging the new age channels like e-commerce, cash and carry, and modern trade, besides expanding and enhancing the efficiency of our distribution network. These initiatives are coupled with cost and cash flow management to ensure stable and healthy margins. I would once again take this opportunity to acknowledge the superlative efforts of each and every member of the Dabur family, from our plants to the sales organization, who have gone above and beyond the call of duty to catalyze the transformation of Dabur into a stronger, more nimble, and agile enterprise.
While the challenge of COVID still remains, we will strive to continue our pursuit for excellence and stay course on our strategy of strengthening and leveraging our power brands, expanding distribution footprint, digitization across the value chain in the company, cost optimization, and building organizational capabilities for sustainable and profitable future growth. With this, I will now open the Q&A and invite your questions. Thank you.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question -and =answer session. Anyone who wishes to ask a question may please press star then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Anyone who wishes to ask questions, please press star then one. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yeah, Mohit, congrats on a very good set of numbers. My first question is on the oral care portfolio. Two questions. One, market share data other companies are seeing is not reliable because of the lockdown. If you could comment on that. Second, how much is the contribution of Dant Rakshak and the Dabur Herb'l Clove in the % of sales this quarter?
Thank you, Abneesh, first of all. Thanks for your support. Market share data, actually in my mind, is pretty robust, and it's very indicative of the way we've actually performed. Oral care market shows a uptick of around 5%. And as compared to 5%, Dabur shares in Nielsen are showing a growth of almost around 10% for us in the Nielsen data. Whereas our business, in terms of our secondary and primary, is showing a growth of around 24%. In my mind, it's pretty indicative, and the difference between our sales and the Nielsen sales remains intact. That said, there were COVID disturbances which Nielsen also witnessed in their fieldwork while they were collecting the data. Overall, it seems to be in line with the performance that we've shown. That's on that.
As far as Dant Rakshak and Dabur Clove are concerned, having very minuscule performance. We guys just rolled out these brands around two months back. Still there is pipeline filling happening. Overall, we would have only done around INR 7 -odd crores out of Dant Rakshak, and very small, INR 1 or INR 2 crores out of Clove, which is insignificant to our overall performance of oral care.
My second question is on the new products and very high A&P spend. If I see Sanitizer, ACV, and herbal tea, these are not products in which you have a right -to -win because you have entered here late. Already established players are there. One, will you advertise here? Second, will this go into the general trade also at some point of time?
Right. As far as sanitizer is concerned, Abneesh, we've actually tried to create a vertical of home and hygiene under the brand called Sanitize. This will continue across our portfolio, whether it's a sanitizer, it's a hard surface cleaner, or it's a home hygiene product like antiseptic liquid, soap, et cetera. This is a portfolio that we are trying to create, which is all about sanitization. In my view, consumer habits are changing and consumer behavior of purchase is also changing. These habits will ingrain as we going forward. The number of players in the market are very few and far between here, with Reckitt being one of the players and one, two more players in this category. Rest of the soap market, if you see, is all about beauty space and less about antiseptic space. To me, market is underfed in the antiseptic space.
There is a need of multiple players. As far as the right to win is concerned, Dabur stands for health and wellness, and I feel we have a right -to -win in these categories with the credibility and legacy of Dabur and the trust given on our back. There is a complete credibility of Dabur and a right to win to get into these categories. If you see, our antiseptic liquids are doing fairly well, and they are not just plain-Jane antiseptic liquid. They are herbal antiseptic liquids, which will actually carve their own niche in the antiseptic liquid category the way we guys did it in shampoos or the way we guys have done it on oral care.
There are examples replete, which I can tell you one after the other, wherein Dabur has carved out a niche of herbal and natural in these more cosmetic or these artificial categories. As far as Apple Cider Vinegar is concerned on e-commerce, it is showing very good traction. There are limited number of brands present, and with Dabur's name, we have a right to win. Your point is right. We will be extending this brand to modern trade also going forward as we launch extensions and variants in Apple Cider Vinegar.
Have you seen a sales slowdown in Sanitizer in terms of weekly sales numbers?
Yeah, Sanitizer sales have really gone down. There are multiple players who entered into the market and the prices have also come down. The margins have also reduced, and everybody is getting into a market, be it a larger multinational or be it a local company. There are multiple players going into the market. Our sales have also gone down. We had registered a total sales of around INR 80 -odd crores in the first quarter. In this quarter, we've only registered around INR 12 crore sales coming from Sanitizer business. It is not a sustainable business. It will go down over a period of time, and that's what we had anticipated when we had launched. It was very contextual for the COVID times, and that's where it served its purpose. Now the business will kind of mute, and we are pretty well prepared for that.
That said, that is only one of the products under the Dabur Sanitize brand. Now we have got a multiple portfolio under the Sanitize brand, which with the new launches will try more than cover up in terms of margins and also turnovers in the Sanitize portfolio.
Right. My last question is on Chyawanprash 2x sales and strong growth in the Honey. Any sense on how much growth is coming from new customers? Second, is this all in-house manufacturing? Third, edible oil companies are coming into this space. Do you see a threat long-term in terms of market share? Because you have the dominant share, it will be a loss for other players, if at all?
DCP, if you look at the total penetration levels of Chyawanprash sits at a 2% penetration level in the country. The penetration levels have gone up from 2% to around 3.5%-4%. In the season, it will go up beyond this also. That said, 4% is also very low as if you compare with the hair oil portfolio, we have a 90% penetration. DCP is only around 2%-3% penetration levels. If I have to compare myself with other developed countries, which is where India will move from developing to a developed, in other developed countries like the U.S., health supplements and nutraceuticals penetration levels are 80%, with VMS contributing 80%. In India, it's barely 10% level. The headroom for growth is huge.
It's onus on companies like us to bring about Chyawanprash in modern formats, in palatable formats and better packaging, which can traverse the distribution. Then sky is the limit for increasing the penetration back of Chyawanprash. We think we should be able to increase the penetration levels of nutraceuticals in the country also, going forward. As far as Honey is concerned also, honey penetration levels are high. They are in the range of around 24%-25%, and they've gone up post-COVID. Multiple players will come into the category. If you look at other countries, honey penetrations are again in the range of around 60%-70%. We have a huge headroom to cover as far as, again, honey potential is concerned. More the number of competitors come in, the more share of voice on media, the more category expands, and therefore more players will come in.
More players are welcome into the honey category while we try to protect our turf. They are welcome and we will try to do our best in the marketplace to fight competition.
Mohit, one small follow-up there. In terms of penetration for Chyawanprash, what are you doing on LUP? We have seen Horlicks and Complan come out with much stronger, much lower pricing, smaller packs. What are you doing there? Manufacturing capacity, if you could discuss for Chyawanprash, is it all in-house?
I'll answer the second question first, Abneesh. Our manufacturing capacities are all in-house. It's a very sensitive product. Not everybody can make it. If other companies claim to be making it in third-party, I think one has to be very sure that it's a proprietary formulation which is registered or authorized or authenticated by Ministry of AYUSH before you buy, because Chyawanprash is a classical name and you need to follow a classical proprietary methodology of making the product, health product before you say. Just taking it from a third-party and rolling it in the market can be very risky for the health of the consumer. That's why most of them are not nomenclature-ing it as Chyawanprash. They call it Chyawan Amrut, or they call it Chyawan something, et cetera. It's a twist in the tale, which I think the consumer will understand very fast.
As far as we are concerned, it's all in-house manufacturing and which is very proprietary to us and which is inspected by Ministry of AYUSH, which is made as per the text. We have augmented the capacity. Our capacities were running short. We've augmented the capacity, and therefore we are expanding our capacity. We are actually taking a mega project in MP of roughly around 40 acres of land. We've also paid an advance for that, and we'll be commencing a production in couple of months, almost three months time. We are augmenting the capacity of Chyawanprash manufacturing going forward as well. Coming to talk about penetration of Chyawanprash and introduction of LUPs. We understand the huge potential there, and we have to reduce the price points to make it accessible to the rural consumer.
For that, it's early days yet, but we are working on some formats which are amenable to LUPs and reducing the price points there. We are working on that. It's difficult for me to let you know at the moment.
Sure. Thanks, Mohit. That's all from me. All the best.
Thank you, Abneesh. Thank you so much.
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, Mohit and team. Congrats on a very good set of numbers. My first question is on your margins and related to ad spends also in that context. You've grown your ad spends by 40% this quarter, and that has prevented the margins from expanding. Just wanted to know your view on a sort of four to six quarter basis. Where do you see ad spends stabilizing, and do you think that there is any upside in your EBITDA margins from these levels?
Thanks, Percy. As far as our ad spends are concerned, I think if you compare Dabur to other companies in terms of the ad spends, we are sitting at a very low ad spend to revenue ratio at the moment. I think we have a lot of catching up for us to do. We still sit at around 8% ad spend ratio. If I look at the best-in-class companies, who would be spending still 12% on above the line to generate demand. There's a catching up to do. Therefore, we'll have a leverage coming in from other line items of cost and also some Samriddhi projects, and they will be invested behind on ad spends and increasing our ad spends going forward. For the balance of the year, we will only increase our ad spends vis-à-vis last year. That's on ad spend.
We don't want to increase our margins. We want to keep the margins where they are, and we want to invest the upside or the leverage in the business into the ad spends. That's as far as the ad spends is concerned. Coming to the margins. We've already got upside on the operating margins. In India, the operating margin has gone up by 22 basis points, and in consolidated, it's around 50 basis points. That will happen, and that's already happened. Even in first half, you've seen a margin growth. In the balance of the year, we want to keep the margins the same as what they are to last year. Overall, for the financial year, there will be an upside in the margin of the first half getting captured into the balance part of the year.
Mohit, how do you look at the margins on a slightly longer term basis, let's say on a three to four year basis? Do you think that your margins, which are, let's say, at 21%-22%, they can structurally go up to 25%-27%? Most of your categories can actually do much higher margins than that. Of course, the foods margins are pulling that down, I understand that. Your categories are such that not too many products have direct comparables. From that point of view, they're niche products, so to say. Can the margins not be higher on a three to five year perspective?
Percy, we've embarked on a journey of innovation and launching NPDs and now trying to get into categories are much larger than where we are already existing in, because COVID taught us a lesson that we don't have to restrict ourselves to discretionary categories of high margin. We also have to pivot our business to categories which are larger and which will give us scale leverage. Therefore, we have to invest upside into advertising. Like I told you, there's improvement required in our advertising. In terms of long-term, two to three years horizon, we are wanting to invest in advertising and not increase the margins to a level of 25%, we are saying it's more maintenance of margins and a little bit upside, if it happens, it happens.
Right. My second question is on the growth of the healthcare business. Right now, that business is doing very well. Of course, there are COVID tailwinds, but once this kind of growth anniversaries, how do we look at growth going ahead? Do we say that on the back of this 40%-50% kind of growth, the growth in FY 2022 will be sort of low single digit or even negative in those categories because the base is just too high? Do we say that this is a new normal base and on that base we will now have a normal growth?
I can't give you a very straight answer on that. I don't know as to how the business will trend. I can only tell you the trends going forward. I cannot forecast what's going to happen next year. As I told you when I answered to Abneesh, that the penetration levels of healthcare are going up in the country, and we are saying this penetration, we are seeing it happen, and multiple players are coming in and therefore the categories will expand. As the categories expand, the market leader only gets to capitalize from this kind of a tailwind, which will continue. In terms of absolute growth rate, whether we'll be able to sustain, answer may be no, because it will come off a very high base.
If you look at Chyawanprash, in last quarter, there was a low base, in the coming quarters, the winter quarter, we've lapped over the high base of last year of winter because summer was off-season. In off-season, on low base, we had a high growth of 2x, 3x. As we enter into the new quarter, now I've come off a high base, but still I'm seeing a growth because the number of consumers are actually going up who are using Chyawanprash. Therefore, they are new customers. When the new customers come in, that's a delta growth which happens although your base is higher. Therefore, the overall category and the pie increases and the market leader with 60% odd share, which is us, will only expand. Exact quantification of the number I'll not be able to do.
I feel the habits have got ingrained. Prophylactic healthcare has become more salient. It's got ingrained in the consumer's buying behavior. Therefore, health and hygiene is not going to disappear from the country even in FY 2022. I will not say that it will be a low single -digit or a negative sort of a growth rate in the category. It is just not the base or what the market does. It is also what you do to yourself to take the business forward. Therefore, we are cognizant of the fact that there will be a high base and we are planning for that. Therefore, maybe more better formats will come in, more NPDs will come in. We'll get into better categories.
We have full 12 months to actually work on the same, and we shall work to prove you wrong that it will be less than mid-single -digit.
Right. Mohit, may I be permitted to ask one small sub-question on Chyawanprash?
Please.
If you can just tell me what was the household penetration of your brand in Chyawanprash in the peak season last year, so that would be Q3 last year, versus what is the household penetration today? Is it higher than the Q3 of last year?
Yeah, definitely. It's higher by at least a percentage point, and we've seen it from first quarter to now the third quarter also as we enter into the season. It's gone up from 2 percentage to 3.5 percentage points, and penetrations have gone up. I still don't have the data as yet, but around one percentage point increase in penetrations have happened. That said is still very low in the range of around 3%-4%.
Okay. That's it from me, Mohit. Thanks a lot.
Yeah. Thank you, Percy.
Thank you. The next question is from the line of Latika Chopra from JPMorgan. Please go ahead.
Hi, Mohit and team. Congratulations on a strong print. My first question on the foods business. We saw 6% growth excluding the enterprise business. Is it right to assume that this quarter won't have the benefit of any festive related loading and we should see the full contribution of festive only in Q3? On some of the new launches here, like low-cal juice, frappe, you have launched an LUP variant at INR 10. What kind of distribution these new launches have and how do you think the contribution of these new products will be in the overall sales mix? If I could just check, do you think now this business is geared to move to about double-digit core growth?
Right. As far as beverage business is concerned, you are absolutely right, Latika. Beverage business ex of HoReCa, ex-i nstitutional enterprise business is growing at 6.5%. If you look at the food business, X HoReCa is growing at 8.5% for us and driven by culinary portfolio, and culinary is a Hommade, if you see the culinary portfolio, is growing at 12%. If I exclude HoReCa, culinary is growing at 45% for us. There is a tailwind on the culinary in-home consumption that we see. I think the food business is back on recovery path very strongly. In beverage business, there are two sub-segments of beverage. One is the in-home versus out-of-home. If you look at out-of-home also, there is a sequential recovery. Out-of-home, which contributes around 35%-40% of the total business, is declining at 35%, whereas the category is declining by around 34%. That is on growth path.
The in-home consumption is growing by around 11.5% to 12%, which is significant. Around 60%-70% of our portfolio, which is a 1 L pack. That has staged a recovery of around 11% growth now. Although off-season, the growth is happening, and I am sure this growth will continue going forward in the first quarter next year also when we come into the season. People are shifting from carbonated beverages to more healthy drinks, and juices are considered healthy. Carbonated beverage is a big market of INR 25,000 crores, as here we're talking about only including drinks INR 6,000 crores-INR 7,500 crores market. There is a source of business, and people are moving from that source of business here. I have no doubt that juices will trend back to growth trajectory. Today it's -35%, but the growth will happen.
If we gain share, we should get back to a double-digit on back of all these NPDs of getting into the drinks market, Frappé, low-cal, and restaging of brand, et cetera. I don't think there's any doubt that we'll get into a double-digit growth rate going forward in the season next year. NPD contributions will be around 5%-6% on the beverage business. We have a lot of potential there in terms of we are hardly scratching the surface and utilizing the equity of Réal. Réal has a huge market equity, and we will keep expanding that. As far as distribution is concerned, we are very small with NPD. NPD distribution is going on, seeding operations are happening as yet. As we scale the business, we'll have to embark on new distribution network.
Our existing distribution foods network, E&D outlets are not doing justice to the drinks market. As we scale up the business, we'll get on to more F&B dealers and more network of the drinks space. That's where we'll be able to grow the business. As far as our separate infrastructure of distribution is concerned, we are putting in more feet on street and more SSMs. Today we've got a separate distribution network in metros and only in North India. Gradually, slowly, we are expanding that also, and we'll have exclusive distribution network across India as we scale up the new businesses.
Sure. If I could check a little bit more on toothpaste. Could you state the toothpaste growth in the quarter? I probably missed it. What is really driving this? Is it also supported by some kind of channel inventory normalization? Is there a big difference between the primary and secondary offtake here? Also, are you happy with the traction for Dant Rakshak?
Right. As far as the Oral Care category is concerned, Oral Care category, if you see, is growing by around 5%, and Nielsen shows our growth at around 10%. If you look at the overall category is growing by 5%, the natural-based toothpaste category is trending at around 8%. Natural toothpaste segment, which is around 27%-30% of the market, is growing at 8%. Overall market is 5%. That means the chemical-based toothpaste or calcium carbonate-based toothpaste are actually doing much worse as compared to the natural segment. The beneficiaries of this growth are Patanjali, are Vicco and other natural players. This natural sub-segment of oral care is actually growing, and this is growing across different benefit segment also. Today, it's limited to anti-cavity, tomorrow there'll be more benefit sub-segmentations also being carved out here in natural as the segment becomes more and more attractive.
Therefore you see, for us, all the entire portfolio of oral care has done well. We've revamped Meswak, and we've revamped it. We've revamped Babool toothpaste. On back of Babool Ayurvedic, Babool franchise is doing well. Meswak is doing well for us. Dabur Herb'l Toothpaste, which is limited to Kerala, we are gradually, slowly expanding it beyond Kerala to south of India. We've launched clove toothpaste as one of the variants there. That's initial early days yet, but it's a NPD. Dant Rakshak has been launched in areas where Dabur Red is not very strong, which is the north belt, where Dabur has a lot of equity because Patanjali is a player which is very salient there, and it's coming at a price point of around INR 40 per 100 g as compared to Dabur Red, which sits at INR 50.
It's got a sweet spot of price point which is very attractive. I think it should gain strength there. We've got a turnover of around INR 6 crores-INR 7 crores yet, but that's small. I think the initial feedback from the market is around 20%-30% repeat, which is good by any standpoint. I think we will continue to push this brand, and initial feedback is pretty positive. We are very hopeful on Dant Rakshak.
Sure. Thank you so much.
Yeah. As far as, I think I missed out primary and secondary, we have actually corrected our pipelines by almost nine days overall, and including Oral Care for us. There's no pipeline loading which has actually happened. There's a pipeline correction happened, and 24% growth in primary is also a 25% growth in secondary. We've actually corrected the pipeline. Secondaries are higher as compared to primary.
That's very useful. Thanks, Mohit, and all the best.
Yeah. Thank you, Latika.
Thank you. The next question is from the line of Prasad Deshmukh from Bank of America. Please go ahead.
Hi, Mohit and team. Congratulations on the 2Q results. Two questions from me. One is, of the raw material exposure that you guys have, how much is linked to agriculture? Do you have any opinion on how the new agri reforms will impact these costs?
Right. Prasad, our results are very close to what you had estimated, closest to what you had estimated in terms of results. I think you predicted it very well. I don't know how you predicted it, because we could also not predict it, but you predicted it, and we were startled when we saw your estimate, which is very closer to us. That aside, on raw material exposure, yes, we have three buckets of raw materials here. One is petroleum and crude-linked, and one is agri-linked, and third is specialty chemical, and fourth is juices portfolio. We have around 50% almost purchase happening on herbs, spices, agriculture-linked commodities, even more than that. That is seeing significant inflation going forward, and we are contemplating judicious price increases in selective sub-segments, and to see how we can mitigate that inflationary trend which we are seeing.
As far as quarter one, quarter two was concerned, we saw deflationary trend on back of crude and also on agriculture. With MSPs and the government reforms coming in, and which is more linked to agri only, we are seeing inflation hitting us. CPI is already sitting at 7% +, and even WPI is seeing a growth of around 2% odd. We are looking at how to offset it by way of price increases.
Are there any efforts in terms of getting into contract farming or bypassing the APMCs completely so that cost structure reduces permanently?
We are evaluating. We've made a cross-functional team in procurement, and we are seeing that in selective raw materials, we can actually go to large-scale farmers to bypass the APMCs. At the moment, not really, because still it's a very new act and we have not come across suppliers with whom we can engage directly. At the moment, we are continuing with both the APMCs. That said, we've made a core committee and they are still thinking and evaluating the major raw materials in which we can go directly there.
Got it. The second question is on your new launches in food. These look like mostly in ready-to-eat or cooking essentials. Could you throw some light on how you are selecting these categories? Especially something like mustard oil is not something that one could have expected otherwise. How are you selecting these categories, and how do you plan to scale up these products in terms of distribution?
Right. We are looking at opportunities which are existing in the foods business, which are high business volume, wherever we have the right to win, where competitive intensity is low, and where the margins are actually higher. There's a three-way framework that we evaluate every category, that the scale of business should be high, competitive intensity should be low, our margin should be high, and we should have a right to win. If all these three, four criteria are actually met, that's when we look at a category. Then we look at selective channels, that do we only get into e-commerce? If e-commerce is a cradle of innovation or cradle of where we can test market our brand, if successful, then we extend it to modern trade and then subsequently to GT.
We will do a proof -of -concept check on e-commerce, and if it does well, then we extend it. It's almost like a test pilot that you do when you launch it on e-commerce. You saw mustard oil is only available on e-commerce as yet. Apple cider vinegar, only available on e-commerce. Baby range, only available on e-commerce. Amla Kids was only an e-commerce launch. That's what, now you've got a test marketing platform available to yourself, so therefore there's no flip side of getting the stocks back from the marketplace. Amazon and other platforms also help you co-create them. They are very keen to stock all the innovations that you may have.
Got it. That's it from my side, Mohit, and many thanks for your kind words. Thanks a lot.
Thank you, Prasad. Thank you very much. Yeah.
Thank you. The next question is from the line of Arnab Mitra from Credit Suisse. Please go ahead.
Hi, Mohit. Congratulations on a brilliant quarter. My first question was on the NPDs from your side. If you could help us in terms of the top five, six NPDs, which you would say you've seen very good traction in, and where you see scalability to, let's say, a minimum threshold of INR 50 crores-INR 100 crores of turnover over a few years. Wherever you've seen strong traction and you've moved from e-commerce to general trade, and you're seeing the rollout continuing there.
Right. In terms of NPD, if you ask me, our first five, six will be PET bottle is a very big one. Réal's entry into the drinks market with PET bottles. I think that's doing significantly well. Second is our health drops are doing pretty well. Third is our health juices are doing reasonably well. Our Amla Plus juice is doing good business. Pickles and chutneys, early days yet, but I think that's doing well. Apple cider vinegar, I would opine that that's got established. That's the big ones, which I should say are doing reasonably well. We've not really entered into very big categories. While it may seem that Dabur has gone into a lot of NPD, but we've chosen our battlegrounds very carefully.
Wherever we've gone into bigger categories, there we've been very channel-focused and got into. For example, our Vedic Suraksha Tea, we've gone into tea category, but that's more of a Kadha variant of a premium tea, which is an adjunct to Dabur, where we have a right -to -win is what we've launched. It's almost like a tea replacement by a kadha. I think those are the big ones and where the competitive intensity will be, you will see that it's low. Margins are pretty high for us and we have a right to win here where Dabur brand lends its credibility to us.
Okay, thanks. Thanks, Mohit, for that. The second question was, when you started this quarter, at that time, I think growth in Dabur had come back to a high single-digit kind of territory, and you ended the quarter at high teens. Obviously, you've gained some momentum through the quarter. While one would have assumed possibly that with the reopening of the economy, COVID, the fear kind of slightly going down, the traction in some of the categories may start tapering off. Have you not seen any tapering off in terms of the broader trends on things like Chyawanprash, which are very immunity-driven? Actually, would you say that the business is continuing to grow very well because the absolute distribution profile of the category has changed quite a lot, and despite the COVID fear going down, it's becoming more of a necessity in the current environment?
Yeah. Sequentially, although the business has definitely turned better and turned round the corner, I should say. That said, most of our channels are doing well. Our stockist channel is doing well. Urban growth has come back. We are growing in urban by around 8-odd%. Our rural growth, which is a super stockist, being a barometer of the performance, is growing at around 25%. Our e-commerce business is doing well. Our institution business is still down. HoReCa is still down. It's declining by around 30-odd%, 25%, 30%, which is yet to come back. CSD is still declining, and the CSD HoReCa both contribute to 3%, 3% last year to the business contributions. These are very significant too, especially our food business. Parlor channel is not doing well. Therefore, skincare is under issue. Modern trade is only growing by around 1.7% because of the Future Group issues.
As the Future Group issues with Reliance get sorted out, I think modern trade will also come back. Reliance is reconfiguring itself in the cash and carry. Cash and carry growth is also only around 10-odd%. Had Reliance been doing well, 50 stores, et cetera, we would have registered a growth of maybe 20%+ there also. I think a lot of channels and a lot of categories like home care, skin care, traditional categories, hair oils, they are still not firing to their potential. I think going forward, they should improve the channels and the portfolios. The healthcare business, which will come off a high base, will mute a little bit. In my view, they should balance each other going forward.
Mohit, one last question on the international business. Any comments on how that is tracking? The non-Middle East recovered very strongly, would there be some element of pipeline in the non-Middle East part of the recovery? Middle East itself, do you still see the current headwinds continue into the second half?
Middle East in the current quarter, in the last quarter in which we saw the results, obviously faced macroeconomic headwinds on account of crude oil prices being low, and therefore that having a pressure on the economy and the disposable income of the people, a lot of spends were down by the local Emiratis and by local Saudis because they are the true consumers of our business. High per capita consumers for Dabur brands, which are expats, actually moved out of that market. That had a issue with our Middle Eastern business. As we go along, I think we come off a low base now. Our Middle East business should recover and the categories are also going back as now lockdowns have been removed and people are getting used to the new normal. Middle East business should be back on recovery from current quarter onwards.
Besides Middle East, other businesses under pressure are the Sub-Sahara business there, which is Nigeria, and you would know the issues in Nigeria. Because of the COVID, I think Nigeria also gradually and slowly should trend back. Barring that, all our pockets of international business are doing reasonably well. I don't think there's a problem. SAARC is already back. Bangladesh, Nepal, Turkey, America, U.K., Europe, all the businesses are doing well. Sub-Sahara and Middle East are the only two pressure points out of which Middle East should recover, and Sub-Sahara should also recover in due course.
Okay. Thanks, Mohit. That's it from my side. All the best.
Yeah. Thank you, Arnab. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to one per participant. For any further questions, you may come back for a follow-up. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, Mohit and team. Congrats on a good set of numbers.
Thank you.
Sir, last September at the Analyst Meet we had in Gurgaon, you had revealed the strategy of power brand, and then COVID happened, and like many other companies, we also used tactically our brand into many health and hygiene platforms. Now we are talking about changing the DNA of the company on NPD platform. If you can just elaborate, are the two strategies of power brand and then the new NPD strategy, are they mutually exclusive or part of the same broader construct?
Right. Tejas, they are not mutually exclusive. They're actually subsumed in one. It's actually innovation is a strategy we said then, and we are saying now. It's innovation across power brands only that we guys are doing. Like Réal is our power brand. What you see, innovation in Réal, we've launched a Réal PET bottle, we've launched a Réal Frappé, we are launching everything under Réal. Hommade is a separate brand altogether, so that is separate. Innovations are happening in Réal. Similarly, in Amla, we've launched Amla Aloe Vera, we've launched Amla Badam, so we are strengthening that only. In Hajmola, we've launched a Hajmola Chatcola, we are launching a Hajmola LimCola. We are strengthening the Hajmola brand. In Honitus also, we're launching Honitus Hot Sip.
Then there's a Dabur Healthcare brand, under which you have a Suraksha Tea coming up, and you have eventually a MFD coming up, and Honey variants coming up. The power brands and NPD, they are not mutually exclusive. The power brands will grow on back of line extensions of these brands or brand extensions of these brands. It will be line extension, brand extension, SKU extensions of these power brands, and therefore a brand which is INR 1,000 crores will actually become a INR 2,000 crores. We will get synergies of investments also on back of this. In my mind, they are just not mutually exclusive. They're actually a similar strategy. What happens is, when you enter into a new category, which was a opportunity presented to us in COVID, like sanitization became very big.
Sanitization could not be subsumed under our Odonil brand or Odomos brand or any other. Therefore, it called for a creation of a new category called Dabur Sanitize, which would cut across the home hygiene and personal and home hygiene. That's why we created that brand. It's a opportunity. We can't be slaves to one strategy that we save. The environment is so dynamic, we have to keep continuously changing or tweaking our strategy. That's what we have done during these times.
Fair enough. Sir, just to follow up on that, Dabur brand has now been linked to, from pickle to apple cider. How should one look at Dabur as a brand architecture? How is this strategy different from what Patanjali attempted three years back and then they saturated and their growth as well?
Dabur stands for health basically for us. That is the area where Dabur will get extended. Apple Cider Vinegar is also like a health platform, and this will only strengthen the equity of Dabur as we get into it. It is a little different than Patanjali. I don't know how to compare it with Patanjali or not to compare it with Patanjali. I don't think it's Patanjali. It's our execution excellence which actually makes us different from Patanjali. To my mind, Patanjali also did a very good job out of mainstreamizing Ayurveda. I think their execution and their funds management somewhere led to the demise, especially acquisition of Ruchi Soya now, and therefore the cash flow problems that the company is facing and the quality issues, which came as a big hurdle to their growth. Otherwise, in my mind, the strategy wasn't flawed. It was okay.
That's my take as a professional.
Great. That's all from my side. Happy Diwali to the whole team.
Thank you.
Happy Diwali to you, too.
The next question is from the line of Prakash Kapadia from Anived PMS. Please go ahead.
Hey, Mohit, thanks for the opportunity and congrats on a good set of results. Hello?
Thank you.
I had two questions.
Excuse me. This is the operator. Mr. Kapadia, may we request you to use your handset, please?
Yeah. I'm using it.
Thank you.
Yeah. Now am I legible?
Yeah.
Yeah. Can you help me understand, so if I in comparison from health supplement, if I look at gross margin, they are flat on a year-on-year basis because of, you know, rural contribution. For us at an overall company level, because I would say, you know, health is a much higher gross margin product for us when, you know, there is.
Prakash, we can't hear you properly. Your voice is getting cut.
One second. Let me Yeah. Now is it better?
Yeah. It's better now.
Yeah. What I was trying to understand is, despite increased contribution from the healthcare portfolio and especially Chyawanprash, our gross margins have not actually seen an increase. Is it because rural contribution from other product has increased, so that has a bit of offset this gross margin? I guess rural would be low LUPs and lower margin. Am I reading it correctly?
India gross margin has actually gone up by 100 basis points, Prakash, that's a right analysis on account of product mix. In favor of healthcare, it's actually the international business wherein the gross margins are lower because Middle East business, the high margin business did not do well. If you look at India business, gross margins have indeed gone up by 100 basis points.
Right. On the healthcare segment. On the OTC and the ethical side, which is largely chemist channel focused, is there a lack of distribution from, I think, the 2 lakh kind of outlets which we had earlier? Can you give some sense on the mix between the ethical and the OTC portfolio in terms of value?
As far as the distribution is concerned, Prakash, we are distributed like you rightly identified that the distribution is essentially with chemist outlets. The ethical portfolio is distributed more in Ayurvedic chemist outlets, and the OTC portfolio is more available in the allopathic chemist outlets. Ayurvedic chemist outlets are much fewer in number as compared to allopathic chemist outlets. Ayurvedic chemist outlets will be roughly around 100,000 is where we guys go to. It has gone up drastically. Our OTC chemist outlets are in the range of around 275,000, which is going up from 245,000- 275,000, and we are working on the same. We are working on special channel programs across 4,000- 5,000 chemist outlets and trying to do visibility there to drive demand even in OTC chemist outlets. There was a second part of your question.
Some value mix between OTC and ethical portfolio, if you can give a direction. What was it historically? What is it now?
OTC is a little larger, and it is growing at a faster pace. I think our presentation has the numbers, so you can check from there.
Yeah. ethical business will be growing at around 26% for us.
Yes.
OTC business is growing at around 56%, 55% on that business, which is almost, I think, double the size of our ethical business. What we do is, we guys cross-pollinate products from our ethical business. As they become scalable, we bring them onto OTC and make it available in larger set of chemist outlets, and that's how we grow. Before it becomes available in grocery also, as it becomes a FMHG. Value sale wise-
95%.
Okay.
95%.
Right. Okay?
Fine. Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Aditya Soman from Goldman Sachs. Please go ahead.
Hi. Good evening, Mohit and team, and thanks for the time. Hello?
Yeah.
Yeah. Just quickly on, any sense on how sales have been post the quarter, particularly in October as we sort of enter the festive season? Secondly, you launched several new products on this Amazon Big Day and then some of these other e-commerce events. How has the response been to those?
Aditya, can we be little away from the mic and speak? It's actually blaring. We are not able to understand what you're speaking.
All right. Sure. I hope this is better.
Can you repeat, please?
Yeah. Just wanted to get a sense on October sales, and also sales on some of these Amazon Big Day and events like that where you'd launched some of your new products.
Yeah. I think the business is I can't tell you the exact numbers actually, but the business is trending okay as we enter into the festive season. It's okay because this time Diwali is later, so therefore, we did not stock too much in the last quarter, and the stocking is happening now in this quarter because Diwali has got postponed. Amazon Big Days have been really good for us and for e-commerce. As I was mentioning in my con call address also, we've gained market shares across our different categories on e-commerce, and we are gradually, slowly looking at increasing our market shares whether we operate on e-commerce portals as well. That's why we are offering a lot of NPDs, which are first time e-com as exclusively to either Amazon or to a BigBasket, so that we are able to get traction from them.
So far so good. I think October also, things are only improving from what we saw in the second quarter.
Oh, understand. Very clear. All the best.
Thank you very much.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, good evening, Mohit, and thanks for the opportunity, and really congratulations for the excellent execution and solid volume growth. My larger question is that in case of when I look at last 10-quarter performance, the revenue growth and volume growth doesn't fall, and in between you gave also the explanation that there is a loading for the season which happens and the retail sales happens in the subsequent quarter. Now, does that mean that if the strong growth which we have seen in quarter two, we have more challenges on our hand for the winter portfolio also, if the winter doesn't pan out? What is your thought on the core categories? You sounded a bit cautious saying that health supplement or OTC may not repeat in the similar range of growth.
Sorry, Shirish, I did not get the first part of your question. Can you please repeat again?
I'm saying in the past you have been guiding us that there is always a different skewness and pattern in terms of revenue and volume growth. I think last year, fourth quarter, you explained that there is a seasonality factor where the loading in the trade happens in the beginning, and subsequently the retail sales happen in the next quarter.
Right.
Is that one should read from this quarter number?
No, not really, Shirish. Now, as I told you, Diwali has got shifted, it's got postponed. The loading which used to happen in the previous quarter has not happened because of postpone of the festive season so that we did not do that loading. We have done some loading, the loading has been relatively much lower. Despite the loading, we have corrected the pipeline by around nine days, as I told you. We have corrected the pipeline by nine days. There is no loading of increasing the pipeline that the secondary sales will happen later in the primary sales. That is not the case this time in the quarter.
Well, I understand what you're saying. My bigger question and I'm wrestling in my mind, saying that 50% growth on a year-over-year in one quarter, what has changed? If the industry dynamics has changed or the regional players like Zandu, Baidyanath, these people have not grown, and that's where we have got the market share, or is the whole market is changing? I mean, you explained partially saying that the penetration level is gone up by a percentage. Now with 1 percentage increase, our sales has gone up by 50%, and if the penetration goes another 5%, would we grow 5x?
Absolutely. If the penetration goes up by 5%, we will definitely go at 5x or 10x for all you know. Because our market shares are only 60% today in Chyawanprash, as the penetrations go up, I think the market leader is the one who actually grows. That's not the reason why our growth is there. Health supplement growth of honey and Chyawanprash is only a one part, or I should say only a 10% part of the picture of the growth that you are actually witnessing. If you see the entire portfolio of Dabur, there is a growth across portfolio. I would not say that it's only health supplement. It is OTC portfolio which has grown. It is ethical portfolio which has actually grown. It's NPD which has come in.
It is even the Foods portfolio in domestic, as I told you, has grown by around 8.4%. Our Oral Care portfolio has grown by 24%. Our Shampoo portfolio has grown by 18%. It's actually the GTM and the innovation and a lot of other strategic pillars that we have put in place are actually all firing and the execution engine is doing fairly well for the company. Plus to add it up, there's a tailwind in healthcare, which obviously is the case, which is leading Chyawanprash and Honey growths to where they are.
You're not worried about the competition who has jumped in Chyawanprash and Honey?
We are very worried about it. I think we should be very worried and not be very complacent about it. There's little I can do for it. I think it's only a brighter side of this to look at, that they will improve the penetration levels in the market. We will do whatever it takes in the marketplace to protect our turf. Yeah, competition is a part of the landscape. We can't do much about it. Except that we will keep charting our path of innovation and improving on premiumization and creating economy portfolio so that we are able to utilize our rural infrastructure that we've put in place, which is an entry barrier for people to come in. Nobody can take away from Dabur's equity and legacy and heritage that we have in a consumer's mind.
If an edible oil company launches a Chyawanprash, I don't know whether a consumer wants to buy an oil in a honey or an oil in a Chyawanprash, or how does it go in the consumer's mind. That is for you as consumers to choose. Yeah.
Well said, nicely. My last question on, if I may squeeze in on oral care. For many quarters you have been beating industry numbers. What is working in your experience? Now you have got two more ammunition, which is, last year you had Ayurvedic launch, and now you have Dant Rakshak and you have now Clove which is coming. Could you able to tell us what's changing in the market? I mean, obviously non-white segment is picking up faster as a natural base. How long do you think this trend or this cycle will last?
I think oral care category, if you see the Natural and the Herbal sub-segment is the one which is growing, as I was telling you, 8% versus 5%, and that's the case. This has become almost like 27%-30% of the overall market, which never used to be there. Definitely there is a tailwind, there's a inclination of the consumers to shift out from whites and shift into herbal, natural, and Ayurvedic kind of platforms because they are the value-added forms. Do I want to use a calcium carbonate or do I want to use a calcium carbonate plus a clove or a manjistha, which is much more effective when you do clinical trials or when the efficacy happens? Obviously, you want to use a value-added, and value-added is here coming at a cheaper price as compared to the calcium carbonate.
It's a cheaper, better value to the consumer, which is what is working here and working for the entire segment. Dabur is just trying to plug the gaps that we are seeing, geographical gaps and also the benefit positioning gaps and also the consumer gaps. That's what we will be very soon wanting to revamp our gel portfolio, which we launched as Dabur Red Gel, which didn't do very well, but we are completely revamping. In next quarter, you will see a revamp of Dabur Red Gel happening. We've got all these products. Somewhere, I think either the execution or the proposition did not work, but then we will keep improving. Like I keep telling you, progression is the way to go and not perfection. We will keep progressing and keep repositioning the brands at the time they do well.
Like now, Lal Dant Manjan, we had written it off that it's a tooth powder category, not growing at all. Since we started investing, we've seen a LDM growth of around 30% coming on Manjan. Manjan is back as rural is growing and Manjan is growing because rural is growing for us, and that is only enhancing the equity of Red.
You tried to partially answer my question on the LDM. The Dant Manjan business, you've purely grown because of your investments or is there the downtrading which is happening towards rural consumers?
It is really not downtrading. It is a habit of the rural consumer to use the Manjan format, actually, if you ask me. If I look at the price point of Manjan, it is as much as the price point of the toothpaste, format being different. The price points are very similar. Actually, it could be a little more expensive than our toothpaste business. There's no question of downtrading. It is a habit that the consumer is used to using a Manjan in rural areas, and the urban consumer is used to using a toothpaste, and he can upgrade. Our margins are higher in toothpaste as compared to Manjan. That said, Manjan is a habit, and it's a very effective format.
Therefore, if you've seen the recent advertising of Dabur Red, we are promoting the use of powder as a sprinkler on paste, also on white paste. If consumer, 50% of the population is using a white paste, we are telling them to sprinkle our Dabur Lal Manjan as a vitamin or herbal supplement on top of their pure calcium carbonate toothpaste and make it more effective. That's the new communication that we've put on place.
Thank you.
Can we move on, please? Sorry, we have other people.
Thank you, and all the best.
Thank you very much.
Thank you. Participants, we may request you to please limit your questions to one per participant. For any further questions, you may come back for a follow-up. The next question is from the line of Naman Jain from HEM Securities. Please go ahead.
Yes. Hello, everyone. Congratulations on the good set of numbers. I just wanted to ask you about the supply chain and the management that you guys are doing. I just wanted to know how many new suppliers have you added in this quarter, and what is your target going ahead to reach new demographics and geographies?
Supply chain vis-à-vis COVID times actually improved now. I think there is no disturbance happening in our supply chain. Only some localized lockdowns happened, and besides that, I think it's complete streamlined operation that we have, Naman. We have added a lot of third-party vendors in our supply chain base in terms of vendors. They must be around six, seven vendors that we may have added during the course of the quarter.
Okay. Just one more question. Can you tell me about the pipeline of the new products that you're going to launch in the coming quarters? How many are there in the development phase?
Right. As I told you, there's no pipeline as such. First, we have to establish the products that we've already launched, and as we go along, the percentage NPD will be in the range of around 4%-5% for us going forward quarter -after -quarter. I can't give you the list of products and the numbers which we are working on.
Okay. Got you. Thank you.
Thank you.
Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.
Yeah. Hi, good evening. This is Harit here. Just two questions. One was on the hair oil side. If I look at the decline of 6%, if you could just give us a sense of what's happened there. Is it a downtrading impact you're seeing in the category or something else?
Right, Harit. In hair oils, there are two sub-segments for us. One is the perfumed hair oil segment and the coconut oil segment. In coconut oil segment, which is growing, we've gained market share by around 10 basis points there. In the perfumed hair oil segment, if you discount the CSD and the institutional business, our business is almost flat in line with what the category. Category of perfumed hair oil declined by -1, our sales is almost flat. That said, we've lost around 10 basis points in perfumed hair oil segment. Our flanker brands are doing well, which is Sarson Amla, has grown by 10 percentage points, they are doing better. This is clearly illustrating that there's a downgrading happening. That's why you find a lot of economy-based companies doing better than Dabur Amla. Our flanker brands continue to surge well there.
That's one.
Yeah. The second part was on distribution. If you could just talk about the first half, what the distribution expansion has been like.
Distribution expansion, we are very much on course on the strategy to increasing our distribution. We've gone up from last year of 1.2 million, we've gone up to around 1.3 million, and next year we'll go forward to around 1.4 million outlets totally in urban and rural. In terms of number of villages, we lost a couple of villages because we could not serve them due to the COVID impact. By end of the year, we will go to our targeted number of 60,000 villages, and for next couple of years, we'll make a plan to take up the 60% to around 80%. That said, we are now appointing village-level entrepreneurs, which is like village Yoddhas, what we call them. We are appointing them in some remote villages where there is no threshold level of business coming in.
As and when we appoint them, they will become our inventory points, and that's where we will try to do some demand generation and gather inventory. As the business scales up, we will convert them into our sub-stockists. That's what we are doing. Also, what we have done in distribution is we have split our HPC line into two parts, HPC 1 and HPC 2, because there are 450 SKUs which are carried by our home and personal care guy to give a focus. One, we've made it a hair care-centric line, and other, we've made it a oral care-centric line. That's what we are dividing. We started a pilot project in one or two urban markets, and if successful, then we'll extend it in other urban markets also.
That's very helpful, sir. Thanks. All the best.
Thank you very much, Harit.
Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.
Hi, Mohit and team.
Hi, Vivek.
Hi, Mohit. Couple of questions. One, Mohit, comment about A&P spend. You are looking at best in class 12% number. Is that what directionally what you want to achieve or, let's say, hit over the next or in the medium term? I'm guessing that there is a portfolio difference also, so that 12% number may not be comparable as much. Incrementally, is it what you are planning to invest at a broader portfolio level?
Yeah. That is the number that we are working towards, and we know that we are at around 8%, so we should gradually, slowly increase our advertising spending. Looking at our diversified portfolio, I think we've got too many mouths to feed and too little resources. Therefore, we have to get into a higher degree of investment for demand generation. Our products are also pretty seasonal, so I think we can do it. We have to get the monies out from other avenues of cost line items, and that's what we are working there for Samriddhi and all that. Therefore, going forward, in medium term, our advertising spend will definitely go up vis-à-vis last year, Vivek. I don't know by what horizon will I be able to achieve 12%, but we will at least make an attempt of investing higher amount. Lalit is right here.
He is my guardrail for increasing the advertising investment. As and when he allows me, I will do it.
Yeah. We'll maintain the efficiency and the returns of that.
Yeah, let's go on.
Thanks, Mohit.
Thank you. Participants, to ask a question, please press star, then one. Anyone who wishes to ask questions, please press star then one.
Yes, Santhosh.
Sure. We take the question from the line of Naman Jain from HEM Securities. Please go ahead.
Yes, sir, I just wanted to ask, what is the volume growth in the multiple segments that we have? Can you give me the specific about each of the segments and the volume growth?
No, sorry, Naman, we don't really disclose category-wide volume.
Okay, no problem on that.
Thank you. The next question is from the line of Richard Liu from JM Financial. Please go ahead.
Hi. Thanks for taking my question. Hi, Mohit.
Hi, Richard.
Mohit, one broad question. In the context of the way higher growth that you did for Q2, versus what you sort of projected and alluded to earlier, and your prognosis of what you've planned for the months ahead, how would you align the 5%-6% growth objective for the rest of the year that you had been spelling out thus far?
Yeah, Richard, we've not spelled out a 5%-6% objective for the balance of the year. We've not said. That said, I can't give you any sort of a guidance on the numbers going forward. The situation happens to be very volatile and continuously in flux with COVID second wave kind of hitting us. One really doesn't know as to how it will pan out. Just to let you know, there is a recovery, and there is a recovery that we see across all channels, across all categories, especially the depressed categories like HPC and foods are also seeing a recovery now coming back, and we are seeing growth. As far as health supplements and health is concerned, we are now coming to a quarter of winter, which is of a high base. Those exponential growths that we saw may not come in.
That said, it can get compensated by the HPC and foods portfolio. I will not be in a position to give you a guidance because the situation is very volatile. I would also really not know as to how the business will turn out to be. We'll target ourselves to deliver a healthy growth, yeah.
Okay. All right, Mohit. Thank you. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Ayaz Motiwala from Nivalis Partners. Please go ahead.
Yes, hi, good evening, Mohit and team. Thank you for taking my question. A little late in the queue. Thank you. Sir, my question to you is on the point you alluded to on, in general, the categories, a little bit of down-trading and the value segments of some of your businesses taking off, in particular hair oils and a couple other categories that you called out. In terms of the constant curation that we've talked about in the last few years, would you be sort of tweaking your strategy to launch some of these, as you said, flanker brands or warrior brands in categories where your core is very strong, but you have some customer down-trading or competition nibbling to your market share?
The trend that we see is definitely down-trading across our segments. If you look at the food business also, a 1 L pack has gone, 200 ml has gone down to 150 ml, INR 20 pack to a INR 10 pack. We've launched LUPs or low unit price points or accessible price points. In toothpaste also INR 20 has gone down to INR 10. A INR 50, INR 100 has gone down to INR 10. Hair oil also, we have a INR 10 price point. INR 10 and INR 20, these are cash coins, which are very important for us to ride our rural infrastructure. In rural business, which is only trending up at around 46% of our sales is in rural business, it's important for us to augment capacities in these accessible price points, and that's what we have been doing.
Although they'll be a little margin dilutive, that's okay for us because it will provide us with the scale and the heft on the top line, and that will leverage our other line items as we are able to scale up the business. In some larger healthcare categories, it is not very easy to launch LUPs because the ticket size required is big, but we are looking at improvisation of formats which permit us to launch sachets or tablets, which are more at INR 10, INR 5 price points. Yes.
Good. Sir, just to follow -up on the same sort of down trading, and related to modern trade. Are you getting requests from specific sort of modern trade companies to have uniquely designed or uniquely package size products for them to compete in the marketplace? How are you sort of treating this, versus a possibility that they would be potentially launching white label brands, any which ways as a way of doing business?
So far, we've not seen a private label threat coming in modern trade except for two categories like home care, which are more commoditized. Rest of the places, we are not seeing a threat of white label happening. That said, there's a channel called cash and carry, which is almost like a surrogate of wholesale. There, it's important for the company to launch different SKU or different products so that it doesn't undercut your regular GT. We are trying to promote our non-KVIs there to ensure that undercutting doesn't happen there. That is the need of developing new products for those segments of business.
I really thank you very much, and it's been a very open and sort of transparent conversation that you had all through this meeting and in the last few weeks. I really appreciate that. Thank you very much and Happy Diwali to the team and all the very best. Thank you.
Thank you very much. Happy Diwali to you and family as well.
Thank you. The next question is from the line of Kunal Shah from Jefferies. Please go ahead.
Hi, Mohit. This is Vivek again.
Hi.
I just missed on the A&P bit. Basically I just heard halfway. You are talking about reaching 12% at some point of time?
Correct. Vivek, we want to inch up to that level, but it will not be immediate. It will be very slow and gradual process of inching up as and when the P&L permits us. Like, this time, P&L permitted us, therefore, you saw a growth of around 50%. We cannot erode our bottom line for increasing our A&P. We will have to account the right balance between the operating margin and increasing our A&P spends also. It will be a very prudent approach in the way that we increase. Principally, we are aligned as a philosophy to increase our A&P and investments behind our brand, and the entire management committee is completely on board. We will have to see the situation of the business so that we do not erode profitability in the bargain.
Right. Mohit, what would be roughly the BTL today in terms of as a percentage of sales?
BTL, for us, will be in the range of around 8%-10%.
8%- 10% BTL?
Yeah.
That will go down as ATL goes up?
No, what you see, what is visible to you, Vivek, is only ATL for you, which is around 8%. The BTL, which is there, is getting knocked off from the gross sales as per the new Ind AS.
No, I understand that part, but I'm just saying that, as you push up ATL, the 8% BTL looks very high to me. Does that mean that, as ATL goes up, BTL starts coming down?
BTL actually is driven. That's a philosophy. Principally it sounds right. BTL is more driven by competitive intensity in the marketplace. If you've got a wholesaler and there are two companies and one giving a 12% scheme, if one doesn't want to give a 12%, you lose out the wholesaler investment to the competitor. That's not what you want to do. BTL is more tactical in nature. ATL is more long-term and more brand-building in nature. They can't replace each other. Ideally, in P&L, we want to replace it. That's what every management does it. I think the forces which work for each one of them are very different. One is a demand-building force. One is a supply force. They can't actually replace each other. You know what I'm saying.
Right. Sure. The other question, Mohit, I have is on the sanitizer sales, which have gone down from INR 80 crores to INR 12 crores for you between first and second quarter. Is there a pullback in the industry revenue pool also, you think?
Pullback in the industry?
Revenue pull, basically.
Right. There is a pullback. Because so many players are doing it, but I think consumer habits are changing, Vivek, if you actually ask. Consumer has got used to this kind of a disease or infection now. The use of sanitizers has actually gone down, and the use of liquid soaps and soaps has actually gone up in the marketplace. It was an initial thing to carry sanitizers, but now we don't see so much of use of sanitizers, that's what. I think there is an industry pullback also coupled with it, because people have seen the margins eroding here because so many players have come in and the prices are falling.
Sure. The reason I asked you about sanitizers was, it is a drop from INR 80 crores to INR 12 crores. Does that worry you also from a healthcare perspective, given that, as customers or consumers become more confident, the healthcare may not necessarily be just in terms of quantum, but there can be a decline in revenues, given as customers or consumers become used to the new world?
No, not really. It doesn't worry us so much because the healthcare penetration in India is so low, and their categories have been there here for so many years. It is not just Johnny-come-lately, like a sanitizer came in and it will go out. It's not like that. Chyawanprash and honey have been there as a part of our tradition, and they will never vanish, Vivek. Therefore, we are getting into more and more better formats under the same power brand strategy so that it doesn't dissipate or have a same thing like a sanitizer. I don't think so that's the case with our overall healthcare portfolio.
Sorry, Vivek, we need to move on.
Yes.
Can we go to the last couple of questions.
Thank you very much. Sure.
Thanks.
Thank you, Vivek. Yeah.
Thank you. The next question is from the line of Akshen Thakkar from Fidelity. Please go ahead.
Hi. Just a couple of questions from my side. One was just to understand the gross margin movement this quarter, maybe just in standalone. You've seen 100 basis points improvement while mix has improved quite a bit. Just trying to understand that, does the 100 basis points fairly reflect the mix improvement, or was there some headwinds you faced this quarter which would have impacted margins?
Yeah. I think the margin improvement of 100 basis points that we saw on the gross margin for India standalone is primarily because of the favorable brand mix. When I say the favorable brand mix, that means that the sale of our juices were lower compared to the high profitable products like healthcare. Therefore, the brand mix has added to the profitability. At the same time, there have been some deflationary impact also seen because of crude, etc., on the raw material cost. That has also added. There is a carryover of price increase that has also given us a favorable impact to some extent. As a result of it, our margins have improved by 100 basis points.
Okay. The next question was to Mohit. Mohit, when you say that you want to increase A&P, let's say to double -digits, and your construct like you maintained over the last year and a half, is to maintain margin. Where does the cost saving come from? Are you looking at better gross margins in the business or are you looking at taking out costs?
Taking out costs, I think there's a lot of flab in the organization. There are other expenses which account for roughly around 9.6% in the overall P&L. There are other elements, of course, staff cost is there, de-layering is there, S&M is there. There are a lot of cost line items, which is where we can get the saving and can be plowed back into the thing. That's why we've launched the Samriddhi project, which is looking at end-to-end value chain of the company and trying to take out the cost elements and get the saving from there.
Okay. The last question from my side was, you mentioned that your secondary sales in the quarter was higher than the primary sales. Any way to quantify that or maybe just help us understand how the channel inventory was in June and how does it stand right now?
The channel inventory last year this time was around 24 days. It has gone down to around 15 days. There's 9 days improvement in the channel inventory across sub-stockists, stockists, wholesale, across the board, inventory levels we've consciously brought down to a level of around 15 days, which is almost the best in class now. We are trying to get into CRS, which is continuous replenishment system, with keeping a 12.5 Day of inventory and whatever the secondary is there, that's how the projection can happen for the primary.
Okay. This 15 days would have been something similar in June quarter as well?
No, it was substantially higher. We have corrected the inventory from June to now by, I think, around two to three days. The rest we corrected in the June quarter itself.
Okay, got it. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, we will now close the question queue and take the last question from the line of Krishnan Sambamoorthy from Motilal Oswal. Please go ahead.
Thanks for taking my questions and congratulations on a very good performance. Mohit, my question is regarding something that you highlighted in an annual report but did not elaborate significantly, which was on Project RISE and the cluster-based approach. I can understand that part of this is already being shown in categories like Dant Rakshak. Can you elaborate a bit on how significant will this be as a part of your future plans?
I think RISE is a complete change in the way we guys are operating. RISE, while it means Regional Insights and Speed for Execution, it's also a structural change in which we operate in the organization. We are trying to empower our regional heads, which are East, West, North, South, and trying to create an organization under them where we'll identify innovations and roll out the innovations. Also looking at state-level and region-level P&L to increase the business in different regions. That is what we are trying to do as a part of RISE. It's actually pretty integral to the way we are working. The organization is also getting structured so that we are able to empower the channel heads as more P&L heads rather than only sales heads.
Okay. Would something like a Dant Rakshak also be a part of this structure?
Yes, absolutely. Dabur Red is actually very strong in South and weak in North India. In North, Patanjali is higher. It's basically a North initiative that we've rolled out with Dant Rakshak. It's not launched in South India. It's not a national launch, it's a regional launch for us.
There'll be many more to come on this structure.
Absolutely. We are identifying products like, for example, if you see in the product list, we've also got Nilavembu Kudineer, which has been launched in South India. This is also a South India. What we've launched in North India is called Kadha. What we've launched in South India is Nilavembu Kudineer, which is basically a RISE initiative for us.
Okay. Just generally, does your healthcare portfolio have more of a potential here, or do you think that HPC also you can do more work on this as a part of Project RISE?
I think across the board. We are trying to identify insights across HPC, HC, and Foods, all the three pillars, and also empower the organization leads there in different regions, and also HPC, HC, and Foods leads. Because we've got all the three segments in sales also. That's how we are trying to create. Across the board.
Understood. Thanks, Mohit. Congratulations and all the best.
Thank you very much, Krishnan.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Ms. Gagan Ahluwalia for closing comments.
Thank you. Thank you all for your participation in this conference call. Due to paucity of time, if we've not been able to answer all questions, we can answer them offline. Please let us know. A recording and transcript of this call will be available on our website soon. Thank you and have a nice evening.
Thank you very much. Yeah.
Thank you very much. Ladies and gentlemen, on behalf of Dabur India Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.