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Dabur: lower raw material costs boost profit margin

Dabur: lower raw material costs boost profit margin
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First Published: Wed, Jan 27 2010. 11 01 PM IST
Updated: Wed, Jan 27 2010. 11 01 PM IST
Considerable savings in raw material costs translated into higher operating profit margins for Dabur India Ltdin the December quarter. Dabur’s net profit during the quarter was up 30% from the year-ago period at Rs138 crore. The firm registered an operating profit margin of around 19% compared with around 17% a year ago. Around 500 basis points savings accrued from lower raw material costs, which dropped from around 51% of net sales to around 46%. However, the savings visible on the raw material cost front is also due to the company using the higher cost inventory during the year-ago period, when the material costs suddenly plummeted. In other words, the quarter gained from the higher inventory base of the year-ago period.
Analysts reckon that the company did well by utilising the savings in raw material costs against higher ad spending in the last two quarters to promote its new launches. During fiscal 2009-10, the company has launched a series of consumer care products such as Amla Magic hair oil, a mint toothpaste in its Babool brand and skin care products. This strategy will pay off in the next fiscal as the products have been well received in the market place.
On a cumulative nine-month basis, the company has already clocked an earnings per share of around Rs4, which was about what it had achieved during the full year 2008-09. Analysts’ consensus is for an earnings per share of around Rs6-8 during 2009-10, given its strong range of products and sustainable operating profit margins. The share has been trading in a band of Rs150-160 in the last four months.
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First Published: Wed, Jan 27 2010. 11 01 PM IST