Dabur's Q2 show driven by 8.7% volume growth in India

Weak growth in select markets impacts top line; stock relatively cheap among peers in FMCG pack

Dabur’s consumer business continues to report healthy growth, even as some of its bigger competitors seem to be struggling for a higher share of the consumer's wallet. In the September quarter, Dabur’s domestic consumer business grew 13.8 per cent year-on-year (y-o-y), led by a volume growth of 8.7 per cent. While Dabur has managed to improve volume in this range for the past several quarters, the volume growth of other fast-moving consumer goods players has declined. Other than the oral care and over-the-counter & ethical segments, most other categories logged double-digit growth during the quarter. Dabur’s international business grew 8.3 per cent in constant currency.

Growth in international business has been driven by growth in Egypt, Nepal and West Asia. However, Ritwik Rai of Kotak Securities says, “Dabur’s top line has modestly missed estimates on account of relatively lower international sales growth, which were impacted by weak sales of Namaste (US/Africa markets).” The rupee’s appreciation compared to last year has impacted the international numbers by 10 per cent, which also impacted consolidated sales. Consolidated sales grew 10.4 per cent to Rs 1,924 crore in the quarter, but in constant currency terms consolidated net sales grew 11.8 per cent.

Analysts claim the company has managed to maintain volume growth as it has not cut back on advertising spends like some other players. Compared to last year, Dabur's advertising spends are up 16 basis points to 13.1 per cent as a percentage of sales. Even though staff costs rose 40 basis points and other expenses increased 3.5 per cent y-o-y, Dabur's margins have largely remained stable. The company's operating margin declined 59 basis points y-o-y to 18.2 per cent.

Dabur’s second-quarter net profit growth of 15 per cent has been driven by a lower tax rate and higher other income. Other income grew 72 per cent y-o-y to Rs 38 crore, while finance costs fell 49 per cent to Rs 10 crore. As a result, net profit rose 15 per cent even though operating income rose 6.6 per cent y-o-y to Rs 350 crore at the consolidated level.

Dabur is currently trading at 32 times its FY16 earnings and analysts remain bullish on the stock. Abneesh Roy, associate director (institutional equities), Edelweiss Securities, remains positive on the stock as the company's sales and profit are in line with estimates. Also, he says, the company has delivered consistent eight per cent plus volume growth for several quarters and with a possible recovery in urban consumption, the company's sales could improve.