Markets
Dabur hopes for festive cheer
Summary
On the brighter side, Dabur expects Q2 gross margin to expand at a faster pace than Q1 when the metric had risen by 74 basis points year-on-year to 46.6%.
Dabur India Ltd’s shares closed 0.7% lower on Friday, a day when the Nifty 50 index was up 0.5%. The company’s business update for the three months ended September (Q2FY24) indicates that financial results for the quarter may well be forgettable.
Dabur noted a year-on-year improvement in FMCG consumption for the quarter, but the recovery has been gradual at best. A mild summer weighed on its food & beverage (F&B) business.
This, along with many festivals falling in Q3 this year instead of Q2 means the revenue in this segment is expected to fall slightly from ₹431 crore (excluding Badshah acquisition) seen in Q2FY23. Other verticals—healthcare, and home & personal care (HPC)—are likely to grow in high single digits each. In Q1, these segments saw revenue growth of 10% and 11%, respectively.
Overall, volume growth is set to be weak.
“After factoring in price increases of 6-7%, we expect Dabur’s domestic volume growth to either remain flat or grow by a mere 1% in Q2," said Ajay Thakur, an analyst at Anand Rathi Institutional Equities.
Dabur’s international business is expected to see double-digit growth in constant currency terms in Q2. The upshot: consolidated revenue is likely to clock mid to high single digit growth in Q2. In Q1, revenue grew by nearly 11% to ₹3,130.5 crore.
On the brighter side, Dabur expects Q2 gross margin to expand at a faster pace than Q1 when the metric had risen by 74 basis points year-on-year to 46.6%. One basis point is one-hundredth of a percentage point.
But higher advertisement expenses may limit the entire benefit at the operating profit margin level. In Q1, this metric grew at a slower rate of 6 basis points year-on-year to 19.3%.
Hereon, the outlook is cloudy going into the second half of FY24. Dabur has a sizeable presence in rural markets where demand recovery has been slow. The company hopes consumption rebounds in rural and urban markets helped by factors such as better macro indicators, increase in government expenditure and positive consumer sentiment.
Dabur’s shares have dropped by nearly 3% in 2023 so far, a sharp underperformance versus Nifty FMCG’s 17% gain.
Demand in Q3 would be boosted by the festive season but whether this translates into meaningful volume growth is a key monitorable.
“The Dabur stock is trading at 43 times FY25 estimated earnings, slightly below the long-term average," said Thakur.
Steady progress towards its goals should fetch brownie points from investors. Over the medium term, Dabur aspires to nearly double the sales in healthcare, and HPC from FY23 levels to ₹5,000 crore and ₹7,000 crore, respectively, and drive double-digit growth in the F&B business.
