Dabur: Cautious guidance outweighs steady show in Q1

Management indicates subdued demand in rural areas could hit growth, hopes for pick-up

Robust growth in volumes and Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin, and good traction in international business were the key highlights of Dabur India's June quarter results. Consolidated net sales grew 10.7 per cent year-on-year (y-o-y) to Rs 2,064 crore and was largely in line with Bloomberg consensus estimate of Rs 2,067 crore. Domestic volume growth stood at 8.1 per cent. All-round growth in both domestic and international businesses led the performance.

Key segments — toothpastes, over-the-counter products, juice — grew between 15.5 per cent and 24 per cent. The hair oil segment and home care segments, too, grew in low double-digits. Growth in international business remained healthy at 11 per cent in constant currency terms.

While top line and volume growth was healthy, Ebitda margin expanded 121 basis points to 15.6 per cent as prices of inputs fell sharply. Going forward, the management believes margins will largely be a function of input costs and expects a 100-basis point rise in margin in FY16 if input prices fall further.

Along with higher other income, which was up by a third to Rs 48 crore, and lower tax rate of 19.4 per cent versus 21 per cent last year, net profit jumped 24 per cent y-o-y to Rs 261 crore and was slightly ahead of estimates of Rs 255 crore.



The good news, though, ends here. The management gave a cautious commentary on the near-term outlook. It seems the fears of rural demand turning soft are coming true for Dabur.

Sunil Duggal, chief executive of Dabur, said, “It will be a challenge to deliver good performance in Q2 (second quarter) of this year due to multiple reasons.” A key reason is that the demand environment is subdued, particularly in rural areas, which form 45 to 47 per cent of Dabur’s domestic revenues. Duggal hopes the upcoming festive season could provide some relief, and has kept the volume growth guidance unchanged at eight to 10 per cent for FY16.

While multiple launches across segments are coming up, the management will wait till they get a little more confidence on customer demand.

Notwithstanding the steady show in the June quarter, the Dabur scrip fell 1.2 per cent even as the S&P BSE Sensex was up 0.4 per cent. Another reason for the stock’s fall could be profit-booking. The scrip had made a new high of Rs 304 last week. It currently trades at rich valuations of 38 times FY16 estimated earnings, which suggests near-term upsides are limited.