Over the last one year, when valuations of consumer stocks have commanded a premium, Dabur has underperformed both peers and the broader market. In Q2, most categories, except haircare, saw single-digit growth. But, double-digit growth seems to have returned in Q3.
In Q3, consolidated sales grew 34.5 per cent to Rs 1,463 crore. Domestic sales, too, grew at a robust 16.2 per cent. Haircare grew 19.6 per cent, homecare 18 per cent, oralcare 11.6 per cent and the digestives business 19.3 per cent. Overall, the consumer care business grew 14.6 per cent compared to 10.3 per cent in the first nine months of FY12.
Analysts say its efforts to improve distribution have led to an improvement in sales. Dabur is trying to reduce dependence on the wholesale channel by tripling the number of sub-stockists in UP. It plans to replicate the model across India, which should improve rural penetration, and, thereby, sales in Q4. The strategy will also help it push its low-end products. However, the management has said the strategy may impact margins. Dabur’s third-quarter Ebitda margin stood at 16.7 per cent, as against 20.1 per cent in the year-ago period.
Commodity inputs have hit Dabur hard this financial year, say analysts. The company says raw material cost pressures have continued, with material costs rising to 50.6 per cent of sales, from 48.1 per cent last year. No doubt, Dabur’s focus on distribution and cost escalation has hit margins, but analysts expect those to recover from next quarter. Citi believes margins are bottoming and expects modest improvements sequentially. This apart, the organic international business division (excluding Hobi and Namaste) grew 37.8 per cent in the third quarter and 21.9 per cent in the first nine months of FY12.
Going forward, analysts see sales growing in the mid-teens in the medium term. However, near-term growth could be driven by pricing action. Unlike the last quarter, the company is confident of rural sales (which account for 45 per cent of total sales) holding up. It is also planning innovations in the personal care, beverages and healthcare segments.
