The Dabur India Ltdshare is up by about 19% compared with the year-ago period, which is not a bad performance, but does not match up to its peers. The Bombay Stock Exchange’s FMCG (fast moving consumer goods) index has risen by about 29% in this period, partly influenced by the sharp rise in the share price of ITC Ltd.
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Dabur’s core business continues to be in robust health, but a few factors have resulted in a subdued performance during the year. The performance for 2011-12 depends on exiting these factors and inorganic growth from recent acquisitions. A relatively new concern is the unrest in the Middle East, which could affect its international business’ results.
In the domestic market, Dabur has done quite well, with overall sales rising by 17% during the December quarter, and with price increases of about 4%. The firm has done well to absorb a 23% increase in material costs with the help of slower growth in salaries and other expenses, and flat advertising costs.
But its interest, depreciation and amortization costs have risen sharply in 2010-11. Ebidta (earnings before interest, depreciation, tax and amortization) rose by about 20% in the December quarter, but its profit before tax rose by a much lower 15%. Higher minimum alternate tax (MAT) rates led to its profit after tax rising by just 12%.
What could lead to a better performance from Dabur in fiscal 2012? One, the budget did not hold any negative surprises. MAT, too, rose by just half a percentage point. Interest and amortization may continue to increase due to its recent acquisitions worth about $170 million (around Rs770 crore today).
But these acquisitions will add to growth too, with the Namaste Grou’s estimated $93 million revenue in calendar year 2010 accruing to Dabur’s revenue from the March quarter.
Dabur’s domestic consumer market growth has been affected by the shampoo business; sales of Vatika shampoos declined by about 30% in the December quarter. This was mainly due to destocking for a planned relaunch. A successful relaunch will reflect in improved sales in fiscal 2012, especially over a lower base.
Apart from the shampoo business, its other categories have been doing well, with healthy volume growth rates in most segments. But margin expansion has been subdued due to rising material costs. Just like other consumer companies, stable or falling prices are a key contributor to Dabur’s performance improving next fiscal. Risks are from stubborn inflation, especially if other costs—such as advertising and salaries—rise sharply. The political unrest in the Middle East is a short-term worry for its international business.
Graphics By Sandeep Bhatnagar/Mint
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