It is surprising that Dabur’s share price shed just 1 per cent on Wednesday, even as the company posted a worse-than-expected performance for March 2020 quarter (Q4).
Supply chain disruptions saw domestic volumes plunge 14.6 per cent, lower than expectations of up to 4 per cent decline and also Dabur's worst ever. All segments – health care, home and personal care and foods – witnessed double-digit fall in revenue. A soft show by its international business didn't help. Thus, topline fell by 12.3 per cent year-on-year to Rs 1,865.4 crore, again missing estimates of Rs 2,132 crore, even as revenue had grown by 4.5 per cent during January-February. With Ebitda margin down 260 basis points year-on-year to 18.9 per cent, pre-tax profit (before exceptional items) plunged by 22.5 per cent year-on-year to Rs 360.3 crore versus expectations of Rs 454.5 crore.
The over 17 per cent fall, from March highs, in Dabur's share price partly explains Street's muted reaction. Secondly, the results came a few minutes before the markets closed, giving investors little time to analyse the numbers.
What could have also helped is the potential gains investors are expecting from Dabur's focus on rural business. At 45 per cent of revenue, rural sales could fare better in the current environment, a point Dabur’s management also highlighted in Wednesday's analyst call.
Shirish Pardeshi, analyst at Centrum Broking, says, “Dabur has been expanding its rural footprint since past couple of years, which would help it grow faster and in the overall business recovery.” The management believes that daily-wage labourers who have gone back to their villages from urban areas would help improve rural consumption habits. Pardeshi agrees, and adds that government’s efforts such as increased allocation to MGNREGA would have positive impact on rural consumption.
Dabur is already in process to increase its rural reach further to 60,000 villages by FY21 from 50,000-55,000 and plans to accelerate its rural direct reach to 1.5 million outlets in next 2-3 years from 1.2 million.
“What is also appreciable is Dabur continued its new product launches and expects their revenue contribution to double, which should support the stock,” says Dhaval Dama, analyst at Equirus.
For now, in June quarter, the management foresees Covid-19 to impact its revenue by Rs 400-450 crore and profit after tax by Rs 60-80 crore.
The lower impact on profit is due to cost saving efforts, which Dabur says will help maintain EBITDA margin at FY20 levels of 20 per cent.