Fast-moving consumer goods (FMCG) company Dabur India Ltd started this fiscal year on an unusually cheerful note. Domestic business volume growth came in at an impressive 21% for the June quarter, which was better than peers at the time.

No wonder then, the company’s domestic volume growth of 8% for the September quarter (Q2) will be disappointing for investors, who had set higher expectations after the June quarter. Note that in the base September 2017 quarter, volume had increased 7.2%. For comparison, volume had declined by 4.4% in the base June 2017 quarter. From that perspective, Dabur India’s volume growth for September quarter isn’t too bad, as it’s not on a muted base.

A note from Edelweiss Securities Ltd says the reason for slightly slower volume growth (versus initial expectations) was muted growth of just 1.5% year-on-year in the beverages category (11.7% growth in base).

What was also disappointing is that profit margins got compressed. Gross margin narrowed 75 basis points and Ebitda (earnings before interest, tax, depreciation and amortization) margin narrowed 22 basis points compared to the same period last year. Faster pace of increase in employee costs hurt even as advertisement expenses declined compared to last year.

One basis point is one-hundredth of a percentage point.

Overall, Dabur India’s consolidated net profit increased by 4%, on a revenue growth of 8.5%.

A shift in the festive season completely to the December quarter this year, affected its performance last quarter. Further, international business performance was relatively muted owing to the weakness in the MENA (Middle East and North Africa) region and currency devaluations in markets such as Turkey.

Reacting to the numbers, Dabur India’s stock lost 2.4% on Wednesday, a day when the benchmark Sensex went up 1.6%. Still, investors have nothing to complain about. So far in FY19, the stock has appreciated almost 18%. It trades at a pricey 42 times estimated earnings for FY19, according to Bloomberg.

Dabur India’s Q2 results suggest the euphoria with which its year began would calm down. Investors will take notice of that. Demand is crucial, especially rural demand. In the international market, investors should keep a tab on the currency.

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