Home >Market >Mark-to-market >Dabur’s rural-health remedy keeps FMCG slowdown at bay

Dabur India Ltd’s volume growth numbers are sure to make its neighbours in the FMCG index envious. Initial results have shown the volume growth in the sector is running out of steam and one would have expected the same of Dabur. But a combination of size, foresight and portfolio mix are helping the company tide over tough times.

Consolidated sales rose 15.5% from a year ago to 1,769 crore in the March quarter, accompanied by 9.4% volume growth. These numbers include its international business revenues. Its domestic consumer goods business’ volume growth was an equally healthy 9.2%, slightly above the 9% growth seen in the December quarter. Price hikes played a limited role, with value sales growing by 14%.

Dabur’s management attributed the growth to two factors. One was its initiative to double rural distribution, helping the company ride the rural consumption wave. However, it was not alone in this strategy, as practically every company in the space was doing it. But Dabur’s relatively small size compared with a giant like Hindustan Unilever Ltd (HUL) with a fairly sizeable rural presence meant the initiative had a bigger overall impact.

That is not all. Many of Dabur’s products fall in the health category—such as health supplements, over the counter products, and digestives. The heath tag helped these segments remain relatively insulated from the slowdown seen in products in the home and personal care segments. Even its foods category—mainly fruit juices—saw strong demand despite an increase in prices, perhaps due to the health factor, according to the company management.

Dabur also had the advantage that its main input costs did not see much inflation, allowing it to digest an increase in advertising and promotional spending and employee costs—both rose ahead of consolidated sales growth. Despite that, Dabur’s operating profit margin was flat relative to the year-ago quarter and increased by 1.1 percentage points sequentially. Net profit rose by 17.3% over the year-ago quarter to 235.3 crore.

The company did point out that a slowdown in rural growth means that maintaining 2013-14’s volume growth is a difficult task. It expects volume growth in the range of 8-10% in the first half of 2014-15. But it is rolling out an initiative to drive up reach among chemists in urban markets to capitalize on the demand for healthcare products. That is based on its belief that urban demand could drive growth in the next few years.

Dabur’s performance has been especially good considering the state of the economy and slowing consumption growth. Its shares closed with a decline of 1.4% on Tuesday. The stock trades at a price-to-earnings multiple of 34 times its 2013-14 earnings, the high valuation explained by its above-average performance. But that appears a difficult act to repeat in the first half of the current fiscal year.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout