Dabur: Not enough juice

Growth is slowing down at the FMCG firm.

Over the past year Dabur has underperformed the BSE FMCG index by about 25 per cent, ever since it announced a foray into the health and beauty retail space. But it's not simply the retail venture, that will require investments and, therefore, could post losses for some time, that is cause for concern.

The FMCG firm, which sells everything from juices to shampoos and mosquito repellents, faces severe competition across categories both from national and store brands.

In an increasingly cluttered market, it would need to spend more on advertising to sustain the brands and push new launches,besides, keeping prices competitive to ensure adequate volumes. And that could impact top line growth and consequently margins.

Even without too much competition, top line growth at the Rs 2197 crore Dabur has been slowing, the growth varying between 11 and 20 per cent in the last four quarters. Only one quarter of the four has seen higher growth than the corresponding quarter of the previous year.

For the December 2007 quarter, the growth at 14.7 per cent was slightly lower than that in Q3FY07 driven by a strong increase in top line from the shampoo, toothpaste and foods businesses.

In fact, the growth in the September 2008 quarter at 12.4 per cent was way below the 21 per cent seen in the September 2007 quarter.

Operating margins in the last four quarters have fluctuated between 14 per cent and 18.5 per cent. In the December 2007 quarter, the margins were flat at just under 18 per cent despite lower input costs and price increases.

Overall, the consumer healthcare and homecare categories saw sluggish revenue growth. Looking ahead, while Dabur has several growth businesses, it is perhaps present in too many categories to ensure adequate focus.

At the current price of Rs 100, the stock trades at 20 times estimated FY09 earnings and is expensive given that earnings are unlikely to grow at more than 18-19 per cent in FY09 and FY10.

Aventis: No relief from the pain

It hasn't been a great season for drug firms companies and Aventis Pharma, which makes the painkiller Combiflam, didn't buck the trend. The street wasn't expecting much but the company couldn't live up to even those estimates.

With the operating profit margin crashing 540 basis points to 14.2 per cent, on lower revenues of Rs 204 crore, the December quarter numbers were quite disappointing. Pfizer, which makes Corex, too saw a fall in its operating margin of 470 basis points to 13.3 per cent in the latest quarter.

Not surprisingly, net profits for Aventis were down at 22 per cent. The slump in operating margins was even more severe for CY07as a whole, at 580 basis points, to 19.2 per cent. Revenues for the year were marginally lower at Rs 874 crore and the operating profit dropped 24 per cent to Rs 168 crore.

In the December quarter, it was the 48 per cent fall in exports that was primarily responsible for the poor top line numbers. While part of this was due to the appreciating rupee, it was also because the demand for products made in India are not seeing enough demand in the MNCs network. While sales in the domestic market rose 11 per cent to Rs 171 crore,

Aventis, has been building up a sales team, especially for non-urban areas that is adding to costs "�a rise of 515 basis points in Q4CY07--and eating into margins.

That has been the issue for several quarters now as Aventis hasn't been able to ramp up domestic sales significantly enough to offset the costs. It has also faced a shortage of some key inputs for its anti-rabies vaccine, Rabipur.

Sales of its popular drug Combiflam are understood to have been good, however. Unless exports revive, the top line will grow sluggishly till domestic sales are ramped up, which could take time.

Margins should continue to be under pressure. The stock has come off by 26 per cent over the past one year. At the current price of Rs 936, the stock trades at 12 times estimated CY08 earnings and should underperform.