Dabur India Ltd not only had to contend with the disruption to sales caused by the goods and services tax (GST) rollout, but a decline in its international revenues too. Still, it has retained its positive outlook for fiscal year 2018, chiefly guided by expectations that India revenues will rebound strongly in the second half.

The company said destocking by trade channels and institutions led to a 5% decline in sales in India with volumes declining by 4.4%. Secondary sales growth, from the store to the consumer, was relatively healthy at 2%. That’s driving the company’s confidence that growth will recover. Its international revenues declined by 8.3% due to difficult economic conditions in its main markets and adverse currency translation impact. On a constant currency basis, international sales declined by 2.2%.

In India, Dabur expects the current quarter to show some improvement but expects the tail effect of GST to continue. Wholesale trade channels are recovering slowly but are unlikely to return to their former position, according to the Dabur management. It may offer higher trade margins to incentivise them to function. In addition, it plans to expand its own reach to markets being serviced by wholesalers. The Canteen Stores Department business may remain a drag on growth, due to lower procurement even post-GST.

Among Dabur’s domestic business segments, hair care and foods were affected the most by destocking. It did well in toothpaste, holding up its own in the face of stiff competition. Overall, Dabur’s sales declined by 8.3% from a year ago, while its input costs declined by a lesser extent of 4.9%. That is partly explained by it having to offer promotions to support sales growth during the quarter. Although it lowered advertising costs as a percentage of sales, and cut employee costs and other expenses, its Ebitda margin still declined by 60 basis points. Still, considering the fall in sales, that is a relatively small decline.

Dabur did provide for Rs14.5 crore as an exceptional item for charges relating to GST transition impact on inventories lying with distributors. That contributed to a 9.8% decline in net profit, without which net profit would have declined by 4.9%.

The main factor to watch for is whether growth recovers fully from the GST chill by September. By then, a clearer picture on the underlying consumer demand situation should also be available. If both are in its favour then the tide will turn in Dabur’s favour, as higher sales growth will spur profit growth as well. The international business may take longer to recover though. Dabur’s shares are up by 14% since end-May, as investors seem confident of its ability to deliver higher growth.