Dabur India: Growth measures

The company is set to benefit from international acquisitions and launches in the domestic market.

The BSE FMCG (fast moving consumer goods) index has registered a 26 per cent gain in 2010, outperforming the Sensex, which has given 14 per cent returns in the period. However, Dabur India lost 38 per cent after a disappointing performance in first half of 2010-11. The consolidated top line grew 17 per cent, while the operating profit margin of about 18.5 was flat, courtesy a challenging domestic market.

But, since the announcement of acquisition of US-based Namaste Laboratories on November 16, the stock has gained about eight per cent, while the FMCG index and the Sensex have remained flat.

Analysts are positive on companies foraying abroad, mainly because margins are better there than in the domestic market, which is intensely competitive. They have re-rated Dabur as an ‘outperformer’ due to a reasonable valuation of 23 times 2011-12 estimated earnings amid positive outlook for the domestic business, followed by the progress on recent international acquisitions.

Its acquisition of Namaste, along with Turkey’s Hobi Kozmetik, its first foreign buy, fits well with the international growth strategy in terms of product portfolio and geographic distribution. Both companies will contribute significantly to Dabur’s revenues from 2011-12 and will help increase its international market share from the current 20 per cent of overall sales.

Though the outlook for the domestic business is cautious, Dabur is better placed due to its presence in herbal/ayurvedic products, where competition is relatively less intense. Revenues are likely to improve with launches in health supplement, home care, foods and consumer health divisions.

Analysts expect the company’s top line growth in the second half of 2010-11 to be better than in the first half. The operating profit margin is also expected to be stable, as the rise in raw material costs is likely to be offset by calibrated price incrteases and control over advertising expenses. The stock may surprise on the upside.