Dabur's strategic moves pays well in Dec quarter, analysts remain positive

Topline up 7% led by 5.6% rise in volumes on faster rural sales, while pre-tax profit up over 9%

Dabur’s December 2019 quarter (Q3) numbers were ahead of Street estimates, save net profit that missed estimates on account of non-operational items. Analysts say that a favourable raw material environment, along with Dabur’s efforts to drive sales, augers well for the company.
 
The company — which owns popular brands like Chyawanprash and Hajmola —clocked 7 per cent year-on-year (YoY) growth in revenue to Rs 2,353 crore in Q3, versus Bloomberg consensus estimates of Rs 2,313 crore.
 
Profit before tax grew 9.3 per cent YoY to Rs 502.3 crore, beating expectations of Rs 496 crore. However, provisioning for impairment in treasury investments continued to hurt the bottom line for the third consecutive quarter. Thus, net profit at Rs 399 crore missed estimates of Rs 413 crore.
 
This, along with the overall bearish sentiment (Sensex down 0.7 per cent) led to the stock falling 2.8 per cent to Rs 478.15 on Thursday.
 
Operationally, Dabur’s efforts towards its power brands — in terms of marketing spend and rural infrastructure — contained the impact of further deterioration in overall demand.
For instance, Dabur’s rural count in Q3 reached 51,511 villages, against 49,000 two quarters ago. This resulted in its rural business (45-50 per cent of sales) growing faster (by 400 bps) than urban sales. This is in sheer contrast to the deceleration (vis-à-vis rural) witnessed by most FMCG peers.

Dabur’s domestic volume growth improved to 5.6 per cent, from 4.8 per cent in the September quarter. Even as Q3 witnessed increased demand pressure across sectors, value growth of Dabur’s two key segments — healthcare and home & personal care (over 85 per cent of domestic business) — was only marginally lower on a sequential basis.
 
Strong international business, with 12 per cent growth (3.2 per cent in Q2) in constant currency terms, also helped drive up top line.
 
However, even as the top line grew and raw material prices remained benign, Ebitda margin rose just 70 bps YoY to 20.9 per cent. The management says it partly reinvested gains from input costs on advertising and promotions, a trend likely to continue as Dabur remains focused on volumes while maintaining profitability.
 
The management also expects input costs to remain supportive in the near term, and has indicated that demand pressures have continued in January.
 
Analysts, nevertheless, remain positive on Dabur. Dhaval Dama, analyst at Equirus Securities, says: “Dabur’s strategic decision, either in terms of rural distribution or focus on power brands, will continue faring better. Further, Dabur will be a key beneficiary of any rural-related announcement in the Budget.”
 
At 45x its FY21 estimated earnings, Dabur remains a good option in the FMCG category.