Posting its best numbers in the last five quarters, Dabur grew its sales by 20 per cent in the December 2008 quarter. That was in line with the performance of the sector — ex-ITC revenues for FMCG firms were up just under 21 per cent. The good news at Dabur was the high volume growth of 14 per cent, Hindustan Unilever (HUL) had reported a volume increase of just over 2 per cent.
The contraction in Dabur’s gross margins though, at nearly 340 basis points, was a tad worse than that for some of the others such as Marico (214 basis points) or HUL (233 basis points). And despite a lower adspend to sales ratio — down by nearly 200 basis points — the operating profit margin fell 110 basis points y-o-y to 17 per cent.
Almost everyone seems to have spent less on advertising last quarter partly because of the strike at some television channels ; the ratio dropped around 150 basis points for Marico while for Tata Tea it was lower by 210 basis points. If Dabur’s net profit was up 14.7 per cent, it was helped along by more other income. Over the past year or so Dabur has underperformed most of its peers in the FMCG space doing as well as or better than only Marico, Tata Tea and ITC.That’s why at Rs 88, the stock trades at just 16 times estimated 2009-10 earnings, being valued lower than most of the pack.
Should it sustain the high volumes, Dabur should manage to grow the top line by 18-19 per cent in 2009-10 and with raw material prices easing, margins would improve. Key brands Dabur Amla and Vatika Oil are doing well as is the international business with the firm having entered markets such as Turkey, Lebanon and China. The consumer health business grew 16.5 per cent during the December quarter, having sorted out some supply chain issues.
The big disappointment in the quarter was foods which grew just 5.6 per cent — its contribution to the top line falling though margins improved. Also, oral care brands Babool and Meswak continued their poor run. The retail business will probably bleed for some more time.
