PremiumAfter a disappointing March quarter, Dabur India Ltd’s June quarter (Q1FY22) results bring cheer. The numbers exceed analysts’ expectations. Consolidated revenues have increased by 32% year-on-year to ₹2,611 crore. Growth was helped by a favourable base given that revenues declined by 13% in Q1FY21.
In Q1FY22, the company derived nearly 74% of its sales from the domestic business, which clocked a volume growth of 34.4%. “(This) takes the two-year CAGR back up to around 10%, which was the level that Dabur was clocking in 2Q-3QFY21 before decelerating steeply to 3.5% in Q4FY21," said analysts from JM Financial Institutional Securities Ltd. CAGR is the compound annual growth rate.
The broker further added in a report on 3 August, “Our discomfort with the volatility in Dabur’s growth profile remains, and makes us question the quantum of push usually involved in the quarterly numbers. Management, though, alluded to inventory days in the trade being lower by two days versus earlier levels."
Within the domestic business, sales contribution from food & beverage; healthcare; and home & personal care (HPC) stood at 19.2%; 35.7%; and 45.1%, respectively. The food & beverage segment registered the strongest growth this time around at 80% helped by a smart recovery in the beverage business. Growth in healthcare and HPC segments stood at 30% and 26%, respectively.
Overall, Dabur did well on the Ebitda level in light of the gross margin pressures. The gross margin declined by 131 basis points to 48.1%. Ebitda is earnings before interest, tax, depreciation and amortization. One basis point is 0.01%. However, Ebitda margin drop was curtailed to 11 basis points to 21.1%.
In fact, Ebitda margin has expanded versus the March quarter even though the gross margin has contracted for the same time frame. Ebitda performance was helped by operating leverage as the company’s revenues were higher.
Having said that, inflationary pressures in key raw materials continues and that’s a concern for gross margin outlook. Against this backdrop, investors would follow Dabur’s pricing actions closely.
To be sure, even as the stock has underperformed the broader Nifty 100 index, it is not as if valuations are cheap. At the current market price, Dabur’s shares trade at almost 50 times estimated earnings for financial year 2023, based on Bloomberg data.
Analysts from Jefferies India Pvt Ltd said, “The aggression on new launches is showing up in market share gains across categories and the CEO intends to continue the momentum. There has been a series of talent acquisitions as Dabur aims to be future-ready, making a case for a strong medium-term story given the Ayurveda advantage." The broker also adds, “However, stiff valuation keeps us sidelined."
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