Dabur hits multi-year high margins in Q4 on cost management, steady sales

10% year-on-year rise in sales (adjusted for goods and services tax) in Q4 also supported the sturdy margin performance

Dabur India’s operating profit margins rose 23.9 per cent, up 206 basis points year-on-year as the company hit their highest level since 2008 in the March 2018 quarter (Q4). This was led by cost management and steady sales. “Our operating margin has increased on the back of improved operating efficiencies and judicious cost management,” said Sunil Duggal, chief executive officer (CEO).

During the quarter, the company’s operating expenses (excluding finance costs and depreciation) as a per cent of sales came down to 76 per cent, which is amongst the lowest it has recorded in the past, from 78 per cent in the year-ago quarter. Besides, about 10 per cent year-on-year rise in sales (adjusted for goods and services tax) in Q4 also supported the sturdy margin performance. 

This can be attributed to a recovery in the rural economy that resulted in 7.7 per cent (higher than the expected 6-7 per cent) rise in domestic volumes in Q4 as the company earns 40-45 per cent of its domestic revenue from rural areas, where domestic business accounted for over 70 per cent of the total business in Q4. “We are witnessing early signs of revival in consumer sentiment, especially in rural India. Rural demand has been growing at faster pace,” Duggal added. What also aided the margins is the muted advertising spendings which were up two per cent over the year-ago quarter. 

The company’s consumer care business, accounting for over 82 per cent of revenues, grew by 8.2 per cent in Q4, propelling the overall top line growth during the quarter. Almost all the categories of consumer care business such as oral care, hair care, skin care, etc posted more than 8 per cent rise in sales. Notably, oral care grew by 11 per cent in Q4 driven by a 13.7 per cent rise in the toothpaste segment. As informed by the company, growth in the toothpaste segment was led by the Dabur red toothpaste franchise, which grew by 20 per cent.

Furthermore, sales performance of Dabur is likely to improve further as it's backed by an expected increase in rural demand and the company is expected to leverage growth opportunities. “Favourable monsoons and a likely stimulus by the government as part of its overall thrust on rural growth is expected to further boost rural demand. (Besides), we will continue to invest behind our brands to successfully tap the significant growth opportunities and deliver profitable volume-led growth,” said Duggal.

Even analysts expect the company's rural business to increase going ahead, which will help in terms of overall business. Also, rural-focused marketing strategy of the company will also support the rural demand in the future, as per Vineeta Sharma, head equity research at Narnolia Securities, who is also positive on the stock.

Moreover, the company also recommended highest dividend since 2002. Total dividend is 625 per cent or Rs 6.25 a piece including special dividend of Rs 5. The stock is up about 2.6 per cent in trade.