Management’s positive commentary on the steady rural growth outlook was the key relief from the result.
Dabur’s Q3 result is clearly marked by a positive trend on the volume growth. Consolidated revenue is up 11.8 percent with higher contribution from domestic business (15.2 percent YoY) partially offset by international business (3.4 percent YoY).
Domestic business at 72.2 percent of sales is led by volume growth of 12.4 percent YoY on a base of 13 percent. The international business was impacted by currency movement and weak performance in the MENA region.
Consolidated operating margin of 20.3 percent (vs. 20.5 percent in Q3FY18) is impacted by higher material cost, currency movement partially offset by cost-saving measures.
Home and personal care grew 16.3 percent with significant contribution from hair and skin care. In Oral care (10 percent YoY), Red Toothpaste Franchise grew 22.6 percent. However, low priced Babool continued to face high competitive intensity. Takeaways from Colgate result also suggested margin pressure for low grammage packs.
In the case of healthcare, the company continues to remain ahead of regional players with Dabur honey growing 19.8 percent.
Rural focused policy initiatives to aid
Management’s positive commentary on the steady rural growth outlook was a key relief. It’s noteworthy that post Q2 results management had cautioned regarding possible moderation in rural growth on the backdrop of weaker monsoon.
We remain constructive on the stock (42x of FY20 estimated earnings) as the intertwined factors of distribution reach (direct reach on one million outlets) and rural exposure (~40 percent of sales) are positive for the company. And with this context company remains a key beneficiary of rural focus in the Indian polity which should lead to a series of policy initiatives in this front.
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