Consumer demand, rural economy revival to propel Dabur India's prospects

Analysts estimate volumes to grow 8-9% in the near to medium term

Dabur India has lagged some of its peers on the bourses in the last one month, despite reported a healthy performance for the quarter ending December 2017 (Q3). But, the trend should change going ahead.

In the past few quarters, Dabur's performance was lagging on account of subdued volume growth. But, its Q3 performance and future outlook suggests that the road ahead will be better. In Q3, net profit grew by 13.3 per cent and its domestic business by 17.7 per cent, over the year ago period. These were led by a 13 per cent increase in volumes, the highest growth in at least 12 quarters, though part of the surge can be attributed to last year's low base when volumes fell five per cent. For companies like Dabur, volume growth is an important indicator of demand and growth prospects.

Going forward, analysts expect Dabur to clock 8-9 per cent volume growth on the back of increase in overall consumer demand and revival in the rural economy. Like for many other companies, the rural theme is playing a vital role for Dabur too as it earns 40-45 per cent of its domestic revenues from the hinterland. In Q3, Dabur's rural sales grew by a strong 23 per cent, indicating an upswing in rural economy. Even the Union Budget FY19 focused on the rural economy.

 

"Considering the positive rural sentiments, Dabur's volumes should grow around eight per cent in Q4 (January-March 2018) and in FY19," says Sameer Deshmukh, analyst at Reliance Securities.

Notably, the company's strong performance in Q3 was broad based. Barring the food business, Dabur clocked higher growth in all segments, and this trend should persist going ahead, which points to healthy volumes. "Revival in demand for all the product categories will result in better volume growth though not as high as seen in Q3FY18, which was due to low-base effect," says Amnish Aggarwal, analyst at Prabhudas Lilladher.

Analyst at HDFC Securities also expect high single-digit volume growth. "Given the new launches, improving rural sentiments, Dabur can see 8-9 per cent volume growth in Q4 and in FY19," says Naveen Trivedi, analyst at HDFC Securities.

Moreover, in case of toothpaste, honey and hair oil, Dabur also gained the market share during Q3FY18. The management, in its concall post December quarter results, said that it is aiming at expanding market share. The market, however will monitor the success on this front given the high competition from players such as Marico, Patanjali, etc.

While Dabur's domestic business did well, its international business posted a meagre five per cent revenue growth in constant currency terms and was impacted due to translation loss of Rs 0.66 billion on account of currency depreciation. But, the worse seems behind. The international business has largely bottomed with constant currency growth coming at five per cent versus 3.9 per cent increase in Q2FY18 and a 2.2 per cent fall in Q1FY18.

Overall, most analysts are positive on the stock and their target prices suggest a 15 per cent upside in the share price, as per Bloomberg data.