Dabur India’s Q4 update a let down margin a sore point

Dabur’s consolidated revenue is expected to grow year-on-year (y-o-y) in mid-single digit year-on-year (y-o-y) but its gross margin would face pressure in Q4. Note that the metric stood at 45.5% in Q3, which represented the seventh consecutive quarter of fall in gross margin at the time.

What is more, Dabur increased its advertisement spends in Q4, which has further aggravated the y-o-y decline in operating margin. The company expects the measure in Q4 to be down by 200-250 basis points (bps) y-o-y. In Q1-Q3, this measure was down by 130-190bps. One basis point is one-hundredth of a percentage point.

The dull margin performance comes even as commodity inflation has cooled off to a good extent. The main factor for the gross margin decline is the currency headwind in the company’s international business.

Given this, revenue growth in this segment would also take a hit. However, in constant currency terms, Dabur expects to see revenue growth in high-single digit.

On the other hand, Dabur’s India business is on a comparatively better footing. The company expects to report mid-single digit revenue growth. This comes on the back of strong performance in its foods and beverages vertical. Also, the healthcare portfolio is expected to continue the momentum seen in Q3 of y-o-y growth. However, the products in the personal care category saw demand slowdown.

To be sure, the demand in the rural markets continues to be muted. Marico Ltd also noted subdued rural demand in its Q4 update. However, there is a silver lining as Dabur sees some green shoots. These include moderating inflation, improving consumer confidence and an increase in government spending. The urban markets have returned to positive volume growth, said Dabur in the update.

As such, volume growth in Q4 is key to track. In Q3, volume in Dabur’s India business declined by about 3% y-o-y.

All said, shares of Dabur are down by 13% from their 52-week highs of Rs610.75 apiece seen in December.