Dabur, which recently acquired Turkish firm Hobi Kozmetik for Rs 324 crore, is looking for more. While it will scout for companies operating in personal care abroad, it will look for those operating in healthcare at home. Sunil Duggal, CEO, Dabur India, talked to Seema Sindhu about the acquisition plans, focus categories and more. Edited excerpts:
How do you plan to fund Hobi Kozmetik?
It will be done by a mix of cash and debt. We will do some borrowing from Dabur International, as eventually Hobi will be integrated as a subsidiary of Dabur International.
But you have enough cash.
Borrowing cost in Dubai is very low. What we earn from cash in India is more than what we pay as interest in Dabur International.
Your international business contribution is 22 per cent. How much do you expect it to be after this expansion of products' portfolio and geography?
If we do one more acquisition this year, next year it should be 25 per cent.
You have been slow in acquisitions.
There is a danger in doing too many acquisitions. You have to assimilate the business. It takes a lot of management and time. Typically, one should not do more than one acquisition in a year.
So, no acquisition this year after Hobi?
Hobi is a small one. It will not stress the company. So, I am not ruling out one more small acquisition. Whether it happens or not is anybody's guess. You keep talking to people but can't predict the outcome. Sometimes, you might find the target attractive but valuations could be very high and it would not materialise.
If we look at value, it's very attractive in countries like the US and UK now.
In terms of value, it's attractive but growth prospects are not good. But we are looking at that possibility, more on how much additional value we can create. We will not buy in developed countries only for the developed markets. We will look at companies there which have relevant products for emerging markets, too.
You are looking at Middle East, Africa and Far East markets for future acquisitions. Aren't these markets becoming competitive, with so many Indian firms entering there?
Nobody has stronger presence in the MENA (Middle East-North Africa) market than Dabur. Nobody is even close. We have got enormous infrastructure, distribution, supply chain. Other companies have very skeletal footprints in these areas. MENA is our most important region. Even in South Asia, we have very strong presence in countries like Nepal and Bangladesh.
Any particular category you are looking at?
In India, we are looking at both health and personal care. However, overseas, because of regulatory issues, the focus is on personal care. Moreover, there is very limited choice in healthcare abroad.
From some time, you have seemed to be focusing more on personal care than healthcare.
Perhaps, yes, in the past, personal care has been our priority. There was a reason, as personal care was growing fast. Now, we are re-focusing on healthcare. The time has come to focus on the OTC (over-the-counter) category, as people are becoming health conscious. They are more aware and willing to try self-medicated therapies. We believe the Indian audience is ready for healthcare and OTC products, which was not so a few years earlier. This market will rise at an exponential rate, much higher than personal care. Moreover, the competitive intensity is also lower in healthcare.
In healthcare, you have been doing a little innovation in your existing products, but not many new products were rolled out.
If you take products like Honitus (cough syrup), which is a Rs 30-crore plus brand now, it was launched only a few years before. We launched Dabur Active Blood Purifier last year. You are right, in a way. But, going forward, there will be far more activity in healthcare than has been so far. We will launch new products in healthcare and the OTC category.
In personal care, competition is becoming very high. Along with MNCs, some direct selling companies like Oriflame and Amway are invading the market. How would you compete in such a crowded market?
Our focus is a little bit away from the large metros. These companies are focusing on the affluent section of society. Our bread and butter target is the common man. We have very strong products tailored for rural and semi-urban populations. We have very affordable price points, which the MNCs and the new entrants can't manage at all.
How do you manage to factor in the cost of playing in such low price points and yet retain good margins?
We do it through economy of scale and good management of cost. We do a lot of hedging. In media, we are able to negotiate well, as we buy media ourselves. Our employee cost is also low; we are very careful in not letting employees go.
In food, you have very limited presence.
Deliberately so. Food offers less margins than personal and health care. In juices, we had the first mover's advantage. If you enter new food products today, we would not have the same competitive advantage. Rather than entering new sub-categories, we will extend the present categories in beverages and culinary foods under the same brands.
In the past you had a joint venture with Dabon for dairy, which was called off. Any plans to re-enter dairy, since it's looking lucrative?
The process of collection and aggregation of milk is very complicated and if you want to outsource, that value chain becomes very unattractive. We would prefer not to enter any capital-intensive business.
