Dabur : Not juicy enough

Dabur’s sales grew by over 18 per cent in the September 2008 quarter, the best numbers seen in several quarters. Reasonably good volumes combined with price hikes have driven up the revenues to Rs 699 crore.

However, despite this operating profit margins contracted by 170 basis points y-o-y to 19 per cent thanks to higher spends on raw materials and advertising and losses of around Rs 5 crore from the retail venture. Among the company’s core businesses, consumer care products and the international businesses continue to do extremely well; it’s the health supplements and foods that haven’t quite delivered up to expectations, the latter growing just under 9 per cent during the quarter, partly due to supply chain issues.

The existing businesses should grow at around 15 per cent but Dabur needs to scale up operations fast. As of now, sales in FY09 are expected to grow by just over 17 per cent to around Rs 2,750 crore though the growth could taper off to under 16 per cent in the following year.

Analysts believe the company needs to put in place some long-term growth drivers and launch some new products that can help it scale up the business. Products such as the surface cleaning brand Dazzl and the malted drink Chyawan Junior are seen to be catering for niche markets rather than large customer bases. What they’re looking for is some new ideas in the foods; the soaps initiative has been rather disappointing.

The health and beauty retail venture — which now has nine stores — could be a drag on profits for some more time because of the high lease rentals and the long gestation period—in the current year net profits are expected to grow by around 12 per cent to around Rs 370 crore. It’s not clear whether the company will choose to scale down its investments given the difficult environment. Since the start of the year the stock has outperformed the Sensex though it has not done as well as its FMCG peers.