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Dabur India Limited

Investors/Analysts Conference call April 26, 2006

Conference Call on the Audited Financial Results for the Year Ended 31st March, 2006 performance of Dabur India Ltd. Dabur India Ltd.s Participants Mr. Sunil Duggal, CEO (Chairperson) Mr. Rajan Varma, CFO Mr. N. Venkatakrishnan, Executive VP-Commercial Mr. D. K. Chhabra, AGM-Financial Planning Mrs. Gagan Ahluwalia, DGM-Corporate Affairs

Sunil Duggal : Good afternoon ladies and gentlemen, I have great pleasure in welcoming you to our conference call regarding our financial results for financial year 2005-2006. The year 2005-06 saw an up trend in the FMCG environment with improvement in demand and resurgence of volume and value growth in some categories. After many years we saw moderate price hikes happening and signs of consumer upgradation. Dabur had embarked on a high growth strategy four years back even when the environment was not so favorable. The company continued to perform well this year as well. Dabur has registered a growth of 23.6% in its consolidated revenues and 44.3% in profits. The key highlight of this year was the acquisition and subsequent integration of the Balsara business, which has added around 11% to total revenues. The business which had been incurring losses was turned around in the first six months of take over and has shown great potential in terms of revenue growth and profitability posting 35% growth in sales and a net profit of Rs. 14.8 crores during the year. Other growth drivers were the foods business, which grew at 46%, consumer healthcare which recorded growth of 38%, and certain FMCG categories like skin care and toothpaste, which outperformed the market. Strong margin expansion of 180 basis points on consolidated basis contributed to the profit growth of 44.3%. This expansion was on account of fiscal benefits, sourcing efficiencies, and control over indirect costs. There was an impressive improvement in profitability of foods business, the profit more than doubled on the back of strong improvement in EBIDTA margins from 5.7 to 8.5%.

In terms of category performance, one of the best performing category was health supplement, which grew at 15%. Dabur Chyawanprash, which is a flag ship brand in this category, posted a growth of 12% gaining 2% market share. This marked a turn around in the brand, which had witnessed a slight decline last year. The oral category, including Balsara oral care, recorded growth of 6% in spite of decline of Red tooth powder. In fact the toothpaste portfolio grew at an impressive 32% out performing the category growth by a good margin. Red toothpaste, which was launched in 2004, has continued a good performance and also notched up its market share to 2.8% during the year. Hair care category had relatively under performed with a growth of 4%. While Amla Hair Oil performed well growing at 5.2%, Vatika Hair Oil revenues were impacted due to low coconut oil prices. The Anmol brand witnessed good growth of 33% in Anmol coconut oil and 14% in Anmol mustard hair oil. In the digestive category, Hajmola tablets and Pudin Hara performed satisfactorily, while Hajmola candy continued to decline thereby depressing overall growth in the category. Baby and skin care posted a growth of 34% led by successful launch of Vatika Honey and saffron soap and good moment in the rose water product, Gulabari. Home care category grew by 53% driven by strong momentum in the key brands Odonil and Odomos, which dominate the niche segment in which they operate. We are quite positive about the potential of this category and the company is planning to take several initiatives in this direction to leverage the inherent equity of these brands and the expected expansion of the category. The international business recorded overall growth of 19%; however, including Nepal subsidiary, which is largely a sourcing base, the growth was 42%. Some of the markets like Egypt, Middle East and Bangladesh recorded strong growth in revenues, while other markets such as Pakistan, CIS, and developed markets the initiatives were somewhat delayed. To provide greater focus to these markets the international business has been operationally reorganized into two regions and has been resourced appropriately to capture potential in these markets. The last quarter of the year was marked by two initiatives, which are non-recurring, and which impacted the financials to some extent. The first was write off of investment in the cheese joint venture, Dabon International Private Limited, since this was not delivering any returns and the prospects of the company are not very encouraging. The company, Dabon, has incurred loss of more than 40 crores and the value as determined by a certified valuer is nil. This holding has been disposed off resulting in an exceptional loss of 12.74 crores. Another event of non-recurring nature was the discontinuation of miscellaneous sales of veterinary products and intermediates, which was a non-core activity. This resulted in a loss of sale of about Rs. 8 crores, mainly in the fourth quarter, impacting growth by around 4% in the quarter and by around 1% for the full year. The company has taken another major initiative this year of presenting the results as per US GAAP. This is in continuation of our effort to continuously upgrade our disclosure and corporate governance standards and also to cater to this demand from overseas

investors. Under US GAAP sales are reported net of taxes and are therefore lower. The difference in profitability under both accounting systems is not very significant. As per US GAAP, sales reflect growth of 26% whereas profit shows an increase of 36%. The year 2005-2006 signified the completion of our strategic plan made out four years ago with objective of becoming a Rs. 2000 crore company by 2006-2007. With the right strategies and good execution we have come quite close to this milestone. We have also been able to achieve our profit target and other performance parameters as per the plan. Now the company has put into place a new strategic plan, which encompasses the next four years and aims at continuing the growth momentum at a similar pace. The strategy is a combination of organic and inorganic growth, although the business plan focuses largely on organic growth since it is hard to put numbers behind the inorganic initiatives. With this I would like to reiterate the intent of the company to pursue strong growth within India and in overseas markets. The platforms and capabilities that have been built in the last four years will continue to be leveraged for outperforming the market and delivering superior shareholder value. Now I would like to open the house for the Q&A session. Thank you. Princy Singh from Citigroup : Hi Sunil, congrats on great numbers. Sunil Duggal : Hi. Thank you. Princy Singh : Two questions, one on your top line growth, obviously in the core business, you know, although you know some of the segments like say Chyawanprash etc. seems to have recovered very well, but you know certain segments, say for example, digestives or even some hair oil brands have seem to slowed down. Is there something that has been done to redress this because I think at the end of the day your core domestic business still remains the largest part of your overall business and you know I would like to see, specially given that across the board top line growth momentum for consumer non-durable companies is picking up, it is slightly worrisome to see some segments slow down. So is there something being done to redress that? That is my first question. I will come to my second question after you answer this one. Sunil Duggal : Yeah. Most segments have witnessed an increase, but within these there are some brands, which have lagged behind the others. One example is Vatika hair oil which did not grow last year unlike Amla or the Anmol range of hair oils which grew very well, so in the case of Vatika the sales have been impacted by low raw material prices, which means that the prices of our competitors, which is largely pure coconut oils, are very low and they impact the Vatika revenues. Even though Vatika profitability is at all time high but there is a revenue impact. So we are now looking at the forecast for raw coconut oil and if we find that there is continued price softening happening in this particular area, we might follow suit and reduce prices of Vatika, which will improve our competitive position, ramp up revenues, even though there would be some margin impact. Princy Singh : Okay. Specifically on your oral care side although the Balsara oral care portfolio which you acquired seems to be doing very well, I suspect it is coming off a

slightly lower base, the decline that you are seeing in the Red tooth powder is it in line with the general market decline or are you losing some market share here, and whether this decline is being made up you know on an absolute basis by what you are gaining on the Red toothpaste side? Sunil Duggal : See the market share of Red tooth powder over the last many years has been pretty static in the band of 29-32%, it has been moving in that band and we dont see any discernable movement in share. So the decline in LDM is I think in line with overall category decline, in fact in the last three years we were able to manage the decline quite well, but this year particularly the decline has happened. Now we are taking some steps to arrest this decline and to get LDM back into positive territory, which we are pretty hopeful of doing, which will be the introduction of new SKUs, complete packaging rewamp and the new A&P strategies. So we have not given up on LDM even though it is obviously a brand which is at the fag end of its life cycle, so the whole trick would be to manage its decline in a way which does not impact overall revenues, and the decline in LDM is more than offset in increase in Red toothpaste, which is growing at around 15-20%. Princy Singh : Sure. Okay my next question is on your margin profile, obviously a fairly good improvement on the YOY margins for the full year as well as for the quarter. I would suspect that the excise impact on a YOY basis probably about the last quarter where you got it? Sunil Duggal : No last quarter was the least of the impact, the maximum impact was in the first quarter. Princy Singh : Yeah, so what I am saying is that the YOY impact on the excise would not be there from the next quarter, is that a correct ? Sunil Duggal : True, thats a correct statement, yes. Princy Singh : So in that context I would imagine that probably there is still a lot of leverage in businesses like Balsara etc. where one would imagine that there could be some more margin improvement, so what is your outlook on the margins going forward and especially in the context of rising raw material costs, I believe you have locked in on your raw materials for some period of time, but is it coming up for revision and how would that, I mean in context of improving profitability of Balsara and the fact that the excise savings would no longer be there, impact the margins going forward? Sunil Duggal : See now excise wont get into margin expansion, so there will be other factors which would. One would be price increases, and part of the price increase would be used to nullify the increase in material costs, but part of it would go into margin expansion, thats what we hope at least that there would be pricing power available to us and we would be able to take up prices much ahead of what we have done in the past few years. Also we would definitely see margin expansion to continue in the Balsara business, but what I am really looking at for the current year is far stronger growth, if you take pure organic means, for the business as a whole than what we did last year. Last year we did something like a 12% growth for the business on a like-to-like basis, this year we would expect that to be ramped up considerably and that would flow down into profitability. So the revenue focus would be much higher this year than it was perhaps in

the last year when margin expansion happened on account of the acquisition and the excise benefits. Princy Singh : Okay great, thanks a lot. Sunil Duggal : You are welcome. Malati Ravedkar from Raditech Services : Hello, congratulations on good numbers. Sunil Duggal : Thank you. Malati Ravedkar : I have one question regarding your food division. This division has performed very well in this year, so how do you see the growth in coming years for the food division? Sunil Duggal : See when you talk about food division we normally talk about the beverage business, which is housed under the Dabur Foods subsidiary. That business grew by around almost 50%, 48% to be precise, last year. While it may be difficult to match that level of growth, we are still looking at very strong growth happening in foods, so it will still be much ahead of overall company growth. Malati Ravedkar : Okay. And about the home care business, I mean do you plan to launch any new products in that category this year? Sunil Duggal : Yes we do. We are just test marketing a line of aerosols under the Odonil brand name. We are looking at new introductions under the Odomos brand, and we are also looking at ramping up the scourers, the Odopic business. Malati Ravedkar : Okay so by when you will be launching these products? Sunil Duggal : Well the aerosols have been launched, like I said, even though it is test marketing. The Odomos range would be launched by around July and we would see new initiatives in Sanifresh and Odopic in the fourth quarter of this year. Malati Ravedkar : And what will be the effective tax rate for the coming year, roughly? Sunil Duggal : The tax rate will be still under MAT, but that level has been raised, so it is around11.3%. So we have around 3% impact on account of MAT. Malati Ravedkar : Okay, thank you so much. Sunil Duggal : Welcome. Sandeep Bhatia from UBS Securities : Hi! Congratulations on a great set of numbers. Sunil Duggal : Thank you. Sandeep Bhatia : Just wanted to focus on the shampoo category, growth for the category as a whole has been very strong, but thats not reflected in Dabur.

Sunil Duggal : I think the good thing which we see in our shampoo business is that the exit rates are very strong, we are seeing growth which is mirroring category growth. So, basically the problem, which we incurred was that we did not reduce prices of our sachets in sync with the markets. While we did this for the bottles but we did not do it for the sachets, so that caused the lag in the first two quarters before we took action around September-October. Now that we are fully into the one rupee sachet for Vatika shampoo, we are seeing a very high growth happening there. So I am not very concerned about the temporary dip in our shampoo growth, I think we will more than make it up this year. Sandeep Bhatia : And what are the exit growth rates as you suggested? Sunil Duggal : Yeah they are in the region of 17-18%. Sandeep Bhatia : Okay, so thats slightly below the category growth, right? Sunil Duggal : Well we said it mirrors category growth, but coming from where we were we still have supply bottlenecks at the moment because the growths went ahead of our internal estimates, so last 2-3 months we havent been able to fully supply the market. So assuming that the category grows at this pace we are confident of outperforming category in the next year. There will also be introduction of at least one more variant which will further fuel growth; that was supposed to have happened last year, but we didnt have it ready. Sandeep Bhatia : Fine. Coming to the fruit juices business, disturbances in Nepal, is that making any impact on supply? Sunil Duggal : They would make some impact in April, which we are hopeful of recovering in May. Supplies were dislocated in the first 20 odd days in April, fortunately we had built up some inventories in March so were able to manage some of the impact in terms of secondary sales at least, but there will be some primary sales impact, but now of course the blockade has been lifted as on day before yesterday, so we are hopeful of recapturing all these lost sales in the next fortnight or so. So I am not worried about any long-term consequences in Nepal at the moment, the worst seems to be behind us. Sandeep Bhatia : So you dont think you need to evaluate a location which probably reduces the Nepal risk, because this country has been in turmoil for a long time now. Sunil Duggal : Sure, thats a valid point, but: a. We have been doing that by moving some manufacturing to a plant in Jaipur, which we acquired, so around 20% of total product mix now comes out of India. We are also watching the situation in Nepal and we wont hesitate to exit if we find that long-term political implications are negative. But we do feel that the worst is behind us, we have done our political analysis of Nepal, we dont think the situation would worsen, it would rather improve. Sandeep Bhatia : Right, thank you, and the last question is on the oral care business, we saw very high increase in the ad spending by the marketing leader Colgate this year at 44-45%, the category of course seems to have grown very strongly, are you going to

see much higher spends in the Balsara whether it is oral care or the other home care categories? Sunil Duggal : See we have spent a fair amount of money in behind Balsara last year; we spent close to 17% of revenues in A&P for the Balsara brands. I think this is adequate spend for continuing strong growth in these brands. I dont see it being ramped up beyond this despite whatever Colgate or anybody else does. We occupy very strong niche positions in the oral care space, so we dont have to always match the intensity of advertising by our competitors, but keep in mind that 17% is well ahead of our overall 11% spends, so we do tend to spend more in this category. Sandeep Bhatia : Right, and would you therefore think that for the current year margin expansion should come through both in the Balsara business and in the foods business? Sunil Duggal : Not in the foods business, we would be looking at maintaining the margins in the food business and driving profits through revenue increases, I dont see margins at the EBIDTA level growing in foods, I see them growing in Balsara definitely. Sandeep Bhatia : Last year in the fourth quarter the foods recorded much higher margins than for the full year, so are you referring to full year margins that you would want to maintain or the fourth quarter? Sunil Duggal : We are hopeful of maintaining fourth quarter margins, but there have been some increase in the raw material prices which we are at the moment not fully convinced whether we can pass them on to the markets. I think we will take a call on that little later, and if there is scope for price increases, then we will be able to mirror fourth quarter margins, otherwise the full year margin profile would be more reflective of the foods business. Sandeep Bhatia : Okay thank you. Sunil Duggal : Welcome. Ritesh Poladia from KR Choksi : Good afternoon sir, congratulations on the good numbers. Sunil Duggal : Good afternoon, thank you. Ritesh Poladia : Sir I just have one broad question, how many brands we have in all? Sunil Duggal : We have at the moment five major brands and three smaller ones. Ritesh Poladia : Okay, who would be the largest selling brand? Sunil Duggal : Dabur, the brand Dabur under which is housed many of our traditional products like Chyawanprash and Amla hair oil, it is by far the largest brand followed by Vatika, Real, and Hajmola, and then we have smaller brands like Odomos and Odonil which give through acquisition. Ritesh Poladia : Okay, thanks a lot sir.

Sunil Duggal : You are welcome. Hemant B. Patel from Enam Securities : Hi Sunil. Sunil Duggal : Hi! Hemant B. Patel : Just one set of questions on what was mentioned earlier, I just missed that, you were talking about margins on the fourth quarter and maintaining it, was it pertaining to the entire consolidated entity or was it only the food segment? Sunil Duggal : That was pertaining to foods. Hemant B. Patel : Okay, what was the take on the entity as a whole, I mean the fourth quarter margins? Sunil Duggal : Well we have shown good growth in the fourth quarter in terms of margins. Next year if you take organic growth, we are hopeful of improving upon this margin, even though I would caution you that in pure organic terms the rate of growth of margin expansion would not be as high as it was last year. Hemant B. Patel : Right, could you shed some light on the international business and the growth prospect over there? Sunil Duggal : Yeah, international business, if you exclude Nepal, which has a lot of sourcing sales, grew by around 40 odd percent, so it grew at a very sharp pace. We are now looking at maintaining or even to increasing the rate of growth in international, we have got some very aggressive number behind the international. Hemant B. Patel : And one more last thing on the pricing environment in the domestic, I mean the rural and the urban markets, do you see the scope for actually improving your prices, at least in the rural markets if the demands actually picks up? Sunil Duggal : Yeah I think there is definitely going to be scope for price increases, we took some very moderate increases last year, most of them in the second half of the year, but going forward we would definitely expect the pressure on prices ease and more price increases happening, we are already seeing that in some sectors, I am sure our areas of interest would also be pretty similar. Hemant B. Patel : How is the volume off take, at least in the rural segment for the consumer care division? Sunil Duggal : The volume off take has improved over the last six months or so in consumer care, and rural has really been the pivotal factor in this improvement. We are seeing good growth coming from rural and we are pretty confident that, unless there is a catastrophic monsoon, this growth rate would continue. So we are very bullish on rural growth this year. Hemant B. Patel : All right, thank a lot. Sunil Duggal : Thank you.

Nikhil Vora from SSKI Securities : Hi Sunil, congrats. Sunil Duggal : Thank you. Nikhil Vora : Apologies for a lot of noise in the background here. Sunil Duggal : I can hear you very well. Nikhil Vora : Okay. Just one thing, specifically on the acquisition or rather it is the acquisition which we did not do, the Nihar one, whatever you can comment on it, would you believe that possibly you underrated the profit potential of that brand looking at the end price which Marico apparently had paid for the brand? Sunil Duggal :See I wont comment upon the valuation as put down by Marico, but I think as a company Dabur has a inherent bias towards high margin brands, and we didnt see the high margin scenario coming out in the Nihar portfolio, therefore when we did our cash flow analysis we put a certain value on the whole acquisition which obviously was much more than what Marico paid for it. But what we really saw is, we didnt see the gross margin profile and it is a practice that the acquisition targets are much more attractive as an acquisition target if the gross margins are high. Nikhil Vora : Okay, and second, just clearly on acquisitions, are there now any specific areas that one would really be focused on as far as Dabur is concerned ? Sunil Duggal : See one of our strength is that we play in so many categories that the acquisition canvas for us is a very vast one, so we can look at acquisitions in the oral care, hair care, health care, foods, home care, you name it, we are also open to acquisitions outside India, so with such a large canvas I think it is only a matter of time before an acquisition actually happens, so while we have not put in any numbers behind acquisition in the current fiscal, I would be disappointed if we didnt snatch some company or brands at least, and which would then substantially improve the business side. Nikhil Vora : And that could include baby care products or anything right? Sunil Duggal : Yes, baby care too, even though baby care is not one of our large categories, but certainly in personal care, health care particularly, I will be very interested in acquiring brands in health care and perhaps even foods. Nikhil Vora : Okay, thank you. Sunil Duggal : Yeah. Sunita Suchdev from UBS Securities : Hi good afternoon sir. Sunil Duggal : Hi good afternoon. Sunita Suchdev : You just mentioned that you would be very interested in snapping some brands in the health care division; my question was what should we look forward for in your consumer health care division, where do you see it and the next year or two years?

Sunil Duggal : Yeah health care is in two buckets, part of it is with consumer health division, which is more of the prescription end of health care, and the OTC part, which is the brands like Chyawanprash and Hajmola which are housed in consumer care. Now we would be looking at acquisition possibilities in both, particularly in the OTC domain, much more than the prescription domain, because our strengths are more in FMCG/OTC. So now that is a wish list that we do have, whether we will be able to actually get them is a million dollar question. But we find that acquisitions in the health care space are inherently very attractive because (a) they enjoy, a, higher margin profile, and (b) the competitive intensity is lower. Even though the domains in health care are smaller than in personal care but it is still a very attractive place to be. There are some very preliminary discussions with a couple of companies on health care brands that we will be very interested in getting hold of. Sunita Suchdev : On your existing business, do you think it will maintain the level of growth that you are seeing this year? Sunil Duggal I think we would like to increase the revenue growths, we feel that we can do better than what we did last year in terms of top line. So that is where the focus like I said earlier would be that we would be looking at fairly substantial improvement in our revenue growth in the current fiscal. Sunita Suchdev : One question on your dividend pay out, would you be maintaining this sort of dividend pay out from here on? Sunil Duggal : Very likely, the only event which would perhaps make this not possible would be a large acquisition, which would mean that there will be much less cash available for dividends. So barring that, for example, when we acquired Balsara, and it wasnt a very small acquisition, we were able to maintain the 50% pay out. So I think this philosophy of 50% pay out in the normal course of events even with a smallish acquisition is possible, but if we buy out something very big then it would possibly drop. Sunita Suchdev : No actually what I meant was it is tending down actually, from 52, 46 and now 44. Sunil Duggal : No it is 53%, if my calculations are right. Last year was 48, and we will send you the precise numbers Sunita, but last year, my finance people tell me, was 48, and this year it is 53. I think there is a tax element which may be you havent considered, the dividend distribution tax, so including the tax it is 50%; my mistake, excluding the tax it is 50%, and it is same for the last year, excluding the dividend distribution tax. Sunita Suchdev : What is the capex that we can build in the next year? Sunil Duggal : It would be in the region of 50 odd crores. We have budgeted 50 crores, we normally spend marginally lower than our budget, so it can be taken in the region of 40-50 crores. Sunita Suchdev : Thanks sir.

Sunil Duggal : Thank you. Mohanish Kadre from Wealth Managers : Hello. Sunil Duggal : Hi, yeah, I can hear you. Monish Kadre : Can you throw some light on your international business, what are the major products you are selling in the international business segment? Sunil Duggal : It is wide range of products, and basically the overall portfolio would mirror the Indian portfolio, but within specific geographies it would be very different, for example, Nigeria to give just one example, is largely a toothpaste initiative, the gulf is largely hair care. Russia is substantially health supplements and toothpaste, so there is no pattern which cuts across all the countries, but basically we take pieces out of our portfolio which are appropriate for particular markets and markets are subset of our overall portfolio. The only countries where we would be perhaps selling a large part of our portfolio would be countries like Pakistan and Bangladesh, otherwise it is a subset. In many countries there are regulatory issues which prevent us from selling health care products. Monish Kadre : Okay so there is no major identifiable products which are spread over across all the countries? Sunil Duggal : Well no, but we are very strong in hair care in many of our traditional markets. But in the newer markets say like Russia and some other countries, we are looking at Ayurvedic health supplements as being the most prominent part of our portfolio, because products like hair care and all has very limited potential there. Monish Kadre : Okay, thank you sir. Sunil Duggal : Thank you. Siddharth Shah from Motilal Oswal Securities. : This is Manish Agarwal from Motilal Oswal. Sunil Duggal : Yes Manish? Manish Agarwal : Sir I had just one question, looking at the kind of growth rates the companies are showing in oral care like Colgate showing good growth and the growth in our Meswak and Babool, showing 70% growth during last year, do you think that the kind of growth rates are sustainable and where do you see your toothpaste brands growing next year? Sunil Duggal : See overall toothpaste portfolio did not grow by 70%, that was you know only Meswak and perhaps Babool which grew at around 60, other toothpastes grew at around 11, overall portfolio would have grown by around 20, sorry perhaps 32%. Basically the growth in oral care is slated to be ahead of many other categories because there is a whole lot of play which is left here. So we are hopeful of maintaining strong growths in oral care. Manish Agarwal : But then what could be sustainable growth rate in the category?

Sunil Duggal : Well sustainable rates in the sense that we would look growths in the region of 15-20% next year in the oral care. Sorry in toothpaste, excluding tooth powders. Manish Agarwal : Thanks a lot sir. Sunil Duggal : You are welcome. Jiten Doshi from Enam Asset Management : Hi Sunil, congratulations, wonderful results. Sunil Duggal : Thank you very much. Jiten Doshi : You have been avoiding one of our questions for last 2-3 years. Sunil Duggal : And which one is that? Jiten Doshi : And that is when we keep asking you that - at the moment we feel you are number one in the Indian market place, whom are you bench marking you yourself against ? I generally dont get an answer from any of you all somehow or the other over the last two years, which direction are you heading, what do you want to be and what do you aspire to be in the future? Sunil Duggal : See we do aspire to be a global Indian FMCG company, so that is really the wish list, we do expect, some time in the future, more of our revenues would come from outside India than from the domestic market. We still have a long way to go, at the moment only 12% of our revenue base is overseas, we do expect it to ramp it up to around 20% over the 2 or 3 years, but you never know through an acquisition the whole company profile can undergo a very rapid change, so it is a very dynamic environment both in India and overseas, and I think it makes sense for us to play in multiple domains, both categories and geographies, so as to make that possible. Jiten Doshi : But do you realize that you would be setting the standards as no Indian company has really attempted in your business to do what you are trying to do? Sunil Duggal : Well we do like to keep raising the bar, and if you see our internal targets for the next four years, we do appear to be extremely ambitious to put it mildly. So we set pretty high standards for ourselves and so far we have been lucky that we have been able to meet them. Jiten Doshi : So you see in the next 4 years about a third of your revenues would come from outside if you are successful at acquiring some company? Sunil Duggal : Yeah that would happen through an acquisition. Even organically something like 20% of our revenue should come from outside India, but like I said there is every likelihood of an acquisition happening overseas, the valuations there appear to be more sensible than what we see in India at this point in time, so it is quite likely that we will be able to do something big there.

Jiten Doshi : So if there is one company that you need to really benchmark yourself again or you aspire to be anywhere in the world, what would that company be? Sunil Duggal : I dont see any Indian company providing a reference point. Because what we have in India it is largely MNC domain and MNCs have got their own restrictions in terms of expansion and growth, but if you see other companies abroad, there are some interesting case studies which we have seen, but those are much larger companies at this point in time. Jiten Doshi : But if you have to say that this is the company I want to be in the future whether it is Coke, it is GE, or whether it is you know Pepsi or whatever, which is that company are you aspiring to b? Sunil Duggal : May sound like a tall claim, but I think the GE model is more reflective of ours, where it will be our diversified FMCG company. Other FMCG companies tend to be little bit more focused and play in only a few domains. But at the moment we have a long way to go before we reach a true multinational size, but we do have ambitions in that area. Jiten Doshi : Wonderful, thank you so much Sunil, I have every reason to believe that and I am sure you will get there. Sunil Duggal : Thank you very much. Princy Singh from Citi Group : Yeah hi. Sorry, just a followup question. Sunil Duggal : Yes? Princy Singh : This was on your health care side, I believe you had reorganized your OTC and the prescription side of the business, and I just wanted to get an update on what is the progress on that side? Sunil Duggal : That business did very well, we grew revenues by around 40% and we are looking at continuing this kind of growth in revenues in the current year. What we did last year was that we resourced that division heavily with people, with A&P spends, feet on the ground, etc., it paid very handsome results as we grew the business by almost 40%. This year in addition to strong growth happening we will be looking at strong profit realization from consumer health care, which we did not do last year because of the investment. Princy Singh : Sir just one question, another sort of follow up, if you look at your faster growing segments, you know, one would see international business, one would look at Balsara, one would look at foods and this health care division Sunil Duggal : In the consumer care there are certain areas like you know health supplements and skin care which have done well. Princy Singh : Yeah but these four I would say would approximately be about 30-35% of your total sales?

Sunil Duggal : Well no, little bit ahead of that, if you take foods being now almost 250 crores Princy Singh : Yeah, so may be close to 40%. Sunil Duggal : Balsara another 200 crores. Princy Singh : Just wanted to get the sense, this 40% of the business is certainly growing ahead of your core business and proportion of this business is going to increase. Firstly, is the margin profile of this business, how does it compare to your core domestic business, and secondly, how much leeway do you have in this business, you know, I would assume on the back of operating leverage to improve margins further? Sunil Duggal : See the margins at the gross levels are actually in most cases superior to that of the domestic business, for example, the consumer health business is superior to the core FMCG business in terms of gross margins. International business is around the same, foods may be a little bit lower, so broadly you can say that the margin profile at the gross level mirrors the Indian FMCG business. Now obviously the margins at the EBIDTA level are lower because they attract higher A&P spends, the wage costs are much higher, the scale is smaller, etc. So basically they are in the incubation stage. Now the margin profile would improve in a calibrated way, we dont want to withdraw the A&P and the other resourcing, because that would slow down the growth, but we are looking at a gradual evolution of their operating margins to Dabur India levels over a 3-5 year period. Our business model is to drive strong, which means 10-15% growth, perhaps a little bit more in a good year, from our core domestic FMCG business housed in consumer care division, and to grow strong profitability there and to seek growths much ahead of that, may be in the region of 25-30 odd percent from the businesses outside consumer care, even though the margin profile may be lower there, so thats how the business model is functioning, and so far it is serving us well. Princy Singh : Alright, I think that answers my questions, thanks. Sunil Duggal : Thanks Princy. Abhijit Kundu from Prabhudas Liladhar : Congrats on a good set of numbers. Sunil Duggal : Thank you. Abhijit Kundu : Sir I just had a question on your oral care, excluding Balsara what would have been the growth in oral care, and second was, Balsara is 11% of your total sales for the year, so could you just give a percentage break up of how much could be home care, and how much could oral care in Balsara? Sunil Duggal : See home care and oral care are roughly equal in Balsara; home care grew by around 60% and oral care by around 30% as far as Balsara is concerned. Now in the Dabur portfolio, LDM declined by 10% and the Red toothpaste grew by 20%, so thats how the Dabur portfolio is stacked up. Now the whole trick is to migrate, if erosion is going to happen in LDM, then we would migrate the consumers to Red toothpaste, and thats what I think broadly has been happening. We have been able to improve the

overall equity of the Red portfolio, I mean of the Red toothpaste. Powder has declined, but I think we have been able to capture the exit of that into the toothpaste, so thats one piece of the Red portfolio, which is pretty independent of the Balsara one. And the Balsara business hopefully will continue to grow at a good pace. We are looking at pretty aggressive growth in Balsara oral business even next year. Abhijit Kundu : Okay, so what would have been the growth in oral care excluding Balsara ? Sunil Duggal : It would have been flat. Abhijit Kundu : It would have been flat right? Sunil Duggal : Yeah, because the Red toothpaste is smaller than the Red tooth powder, so even though the growths and pace were much higher than powder, the overall growths were around flat, but next year we are looking at much better performance in the traditional Dabur oral care portfolio. We are looking at small growth coming from LDM and we are looking at the higher than this growth coming from Red toothpaste. Abhijit Kundu : Okay, and any specific strategy that the company is looking forward to in Red toothpaste like changing the formulation because in tooth powder you are seeing a change in times but what about Red toothpaste, is the company expected to do anything new with this product ? Sunil Duggal : No, you see that the current formula has worked very well and I think we will not necessarily tamper with it. So while we might do some cosmetic changes in packaging etc. the core formulation is something which we have found that it is very much liked by the user, so we dont intend to change that. We just intend to invest more in Red toothpaste and expand the distribution base, introduce new SKUs, do more promotional activities. We feel there is a lot of play left in toothpaste. Our exit rates are good, we are seeing very strong growths emerge in the later part of the year, which are very encouraging. Abhijit Kundu : Okay, and in case of the international business, how is your Pakistan and Nigeria business going about? Sunil Duggal : We did not do much in Nigeria last year, we had local problems in terms of JV partner, we had to change that, so there were some local issues which have been largely sorted out. I think the Nigeria business is slated to grow more than double in the current year. And the other one was Pakistan, the whole Pakistan initiative was contingent upon localization, and it took us time to find a CEO. The CEO obviously has to be a Pakistani national who would be able to then scale up the business. We have been able to find a very good person who has joined us from April, it took longer than we expected, because it is not easy to find the right people there. Now that we have a person whom we feel is very capable, on board, we would be looking at very substantially ramping up Pakistan business. Pakistan is really on our map even much more than Nigeria is in terms of future potential. We feel the markets there mirrors the Indian market, there is a lot of equity which is already there for Dabur products, we have strong brands there like Hajmola and Amla hair oil which do extremely well, we have a strong platform of growth in terms of brands, now what we have to do is to create infrastructure which this person and his team would be doing.

Abhijit Kundu : Right, sir when we last met, you had spoken about outsourcing from China in growing your homecare portfolio, so any progress there ? Sunil Duggal : Yeah, we have imported a few shipments of aerosols from China in March, which have been now test launched in India. We are very happy about the results. We have been able to source in China at very low prices. Now products like aerosols are very capital intensive, items and these are the ideal ones which we should source from China because of the large organized plants there. We will be looking at other niche areas particularly in the freshener domain from China, but other than that I dont see China is being very significant as sourcing base for Dabur for most of its personal and healthcare products. It is only specialized applications like air fresheners etc. where China would be important for us. Abhijit Kundu : Right, and what about plans on contract manufacturing for private labels in case of herbal products ? Sunil Duggal : It is a very interesting initiative, at this moment entirely confined to toothpastes. That requires a lot of nurturing, a lot of contact building, customer relationship, and to do that we have opened up office in New Jersey, we have put a senior person there, whose main job would be to develop the contract manufacturing business for toothpaste for the US market. We are seeing a good potential there, but it is a slow ramp up, so I dont think we will see huge volumes emerging in the current year. There is a lot of relationship building and there is a lot of initial trial which happens before, but the business is potentially huge. I think in terms of both cost of manufacture and product development, our capabilities are second to none, so we have inherent strength in this space. Abhijit Kundu : Right, and this business would be mainly under the Balsara factories right, in the Balsara factory we already have this business? Sunil Duggal : Yeah, we have a Balsara factory in Silvassa, which we are planning to invest substantially in next year and convert it into a EOU both for the contract manufacturing as well as for our branded products which we dont make in the overseas factories, so that would be a dedicated arm for exports out of India. I think it will able to meet the needs of the export market much more efficiently than our current plants which are configured towards domestic requirements. Abhijit Kundu : Okay sir. Thanks. Sunil Duggal : Thank you. Gyanesh Shah from Network Stock Broking : Sir I have few questions; one, I would like to know what kind of volume growth you had for across the category I mean for the company as a whole for last year. Second is on the food business, you talked of that the margin expansion wont be there, so we would like to know the reasoning why you dont expect margin expansion. And what kind of strategy do you have for growing the food business, I mean are you likely to expand the categories as well? In your broader longterm growth you have mentioned that the category expansion would also be a part of the overall strategy, so we would like to have what kind of categories you have that you would like to focus on apart from the current ones because currently also Dabur

already has a pretty diverse presence? And in fact on the consumer health business I would also like to know your strategies on that business because that business grew quite significantly during the current year, and we would like to have some idea on what kind of strategy you have on that business? Sunil Duggal : So you have asked three questions, and I will try to answer all three. The first one is on the volume growth, so just to answer in one line, around 80% of our growth in the domestic business was volume driven and just 20% was on account of price increase. So last year we did precious little price increases, there werent too many opportunities, but there was large margin expansion not just by us but by all players due to the excise benefits etc., so the potential for price increases was very limited. Second question on the foods margins, we can improve margins if we are willing to take up prices, which we may not be, because that would slow down category growths. We feel that this is a business, which is still in its infancy, it has a long way to go. We are looking at very strong growths to continue in terms of tonnage from foods and we feel that any significant price increases might impede that growth. We would prefer to keep margins intact, grow revenues strongly, so that is really the outlook for foods for the current year at least. The third question was on the consumer health business, now that is a very interesting business in which we have a lot of dominance, there are a couple of other players in this space, but I think our capabilities are much ahead of others. Now this business means that we develop a prescription capability which we were earlier thinking that we should not be having because we saw ourselves more of a FMCG player, but we feel that building at least some prescription capability can help the overall business tremendously, so that is what we are doing in the consumer health division. And the reason why we are willing to do that is that the margin profile of consumer health is the best which we have across all our business, gross margins are typically in the mid sixties, which makes investment in this business very attractive in terms of returns. That is what we would be doing in consumer health. Gyanesh Shah : So what kind of growth you are expecting in that category then? Sunil Duggal : In consumer health, we would be looking at somewhere like 30% odd growth, 25-30% growth is what our internal estimates would suggest. Gyanesh Shah : Okay, and regarding the category expansion in the food business as well as in the overall, what are the new categories we have been looking at? Sunil Duggal : I dont think at this point we are actively pursuing any new categories. We have built a new category last year, which is homecare, we still have categories in which we are comparatively small like skin care, so I think the whole effort would be to scale up presence in existing categories, particularly the smaller ones, rather than to enter new categories. So if you are looking at and talking about say biscuits or laundry or confectionary, I dont think we will be entering into these domains even via acquisition. Gyanesh Shah : Okay, and just last one. You also had a very good growth in the baby and skin care segment last year, could we have just more idea about what kind of

growth is the management expecting in this segment as well, because this is like the soaps business where the company has already entered, that comes under this category I think? Sunil Duggal : Yeah, soaps we club under skin care. Gyanesh Shah : Yeah, so I just want to know that what kind of scale up in this business is expected? Sunil Duggal : See the base is a little small here, so the high growth rates were on the back of comparatively small base. Now we would be pretty confident of maintaining that rate of growth in at least the next year, but when the category becomes larger as far as we are concerned, then the growth rate could taper off a little bit. In soaps certainly there is a tremendous amount of room to grow, but we are not looking at a big bang scaling up of soaps, we are looking at more incremental growths so as not to risk the whole business model. Gyanesh Shah : Okay, thank you sir. Sunil Duggal : Thank you. Balaji from Sundaram BNP : Good evening sir. Sunil Duggal : Good evening Balaji. Balaji : Yeah couple of questions, one is like you mentioned about acquisition, so in terms of what is the kind of threshold criteria that you might have in terms of the payback and ROC etc.? Sunil Duggal : Well we have our own hurdle rates etc, but the core issue is that the brands or the company should be synergistic with us, and there should be a whole lot of synergies which we can extract out of the acquired system so as to make the acquisition viable one. Otherwise you know, we do our own projections and our own DCF analysis to arrive at a value, but as we have experienced in the case of Balsara, if the brand is inherently strong, inherently having a good margin profile, and even if the company is losing money, and Balsara was losing serious money, that is the prime turn around case, but if you get into a low-margin commoditized business that becomes much less attractive. Balaji : Also one question on Balsara is - how long is it before it is fully integrated at the Dabur network, both the oral and home care ? Sunil Duggal : It is already fully integrated, but the formal process of merger with the Dabur India would happen over this year. By September you can expect the Balsara entity to be fully extinguished and merged with Dabur India, but effectively operationally it is fully integrated, so you just see the numbers separately because it is a separate legal entity and there is some complexity on the ground because you have to issue two sets of invoices to our dealers even though the dealer was same. All that will disappear, the process has already been put into place, there is a necessary three, four, five months time period which is taken by the legal and other formalities. It will be

retrospective from April 1, 2006, even though it is likely to happen in the month of September. Balaji : So all the Balsara products are now part of your entire supply chain? Sunil Duggal : They are all part of the consumer care division. They are all been housed under consumer care division, which is a core FMCG SBU, and there is no distinction now between the Balsara people and brands and ours. Balaji : Okay, and also on the southern markets, how was that market for you in this quarter because last year ? You have taken some initiatives, so are we near to the target of having south to be some percentage of your total growth? Sunil Duggal : That is right, 15% of revenues in the next three years. It is currently at around 12, so we are getting there. Last year the growth was around 21% in south, which was as per internal benchmark, we are expecting the south to be growing typically at twice the rate of the rest of the country so as to reach the 15% milestone. Balaji : Lastly on the consumer health division, sir did you mention that you are envisaging a 30% growth rate in this? Sunil Duggal : I think 30% is what we would internally look at. This year we grew by 40%, but unlike last year where we did not show any significant profit growth because we invested significant sums of money in to that business, this year we will be looking at strong profit growth emerging, so profit growth would be in line with our revenue growth. Balaji : Which brands have been strong contributors for this growth? Sunil Duggal : You dont have too many brands as such there, it is basically a generic play there, but the one brand which did extremely well was Honey, which we acquired from a sister company called Dabur Pharma. We acquired the brand when it was around 7 crores, it is now doubled its size, now 13-14 crores. It is one of the leaders, it has almost leadership status in OTC cough medicines, so this is the brand which did extremely well. But most of our generic products, which are Ayurvedic medicines like Asavas, Bhasmas, and Ras-Rasayans did extremely well. Balaji : Okay, thanks a lot. Sunil Duggal : Thank you. Gagan Ahluwalia : I would like to thank everybody for joining this conference. The transcript of this call and recording of the web cast will be on our websites in sometime for you to access later. Now I would wrap up this conference again thanking everybody.

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