Dabur India has its share of troubles, but its stock is near an all-time high
Domestic volume growth had increased by 9.6%, 4.8% and 5.6%, respectively, in the first three quarters of FY20Last week, Dabur India said its plants will continue to remain shut till 3 May because of the extended lockdown
In covid-19 times, consumer goods firms selling essential items are considered relatively better off. Stocks of these firms have become a place to hide for investors, so much so that shares of fast-moving consumer goods companies Hindustan Unilever Ltd and Nestlé India Ltd have touched new 52-week highs this month.
Smaller peer, Dabur India Ltd’s stock is not far behind, rising nearly 10% so far in 2020, compared to the 24% drop in the Nifty 200 index. At present, the stock is just 4% shy of its 52-week high seen on the National Stock Exchange on 5 March. The stock trades at 49 times estimated earnings for FY21, according to Bloomberg.
True, valuations are not cheap. In a report on 21 April, analysts at Kotak Institutional Equities said: “Even as we expect Dabur’s portfolio to be relatively more resilient than peers in the current and post-covid environment, a couple of parts of the India portfolio (foods, skincare) could be challenged."
During FY19, domestic and international segments contributed 70% and 27.4% of the company’s revenues, respectively. The international portfolio has some risks as well. “Nearly 50% of the international business comes from the Middle East and Africa. Economies in these markets could come under significant pressure on account of weak crude prices and demand," added the analysts at Kotak.
Benchmark Brent crude prices have dropped by more than 60% so far in 2020, because of excess supply and a collapse in demand on account of covid-19 curbs globally.
It is challenging to closely gauge the impact of covid-19 on the company given the uncertainty. However, more clarity will emerge when March quarter results are announced and management commentary offers insights on the situation.
In the first three quarters of FY20, Dabur India had performed well. It’s domestic volume growth increased by 9.6%, 4.8% and 5.6% for the June, September and December quarters, respectively. The numbers are nothing to sneeze at, as the country was already witnessing a demand slowdown.
Needless to say, March quarter volumes will be subdued. Edelweiss Securities Ltd expects Dabur India’s Q4 FY20 domestic volumes to dip 2% year-on-year on a base of 4.3%. “Healthcare and foods will aid the overall growth rate while skin care will get impacted on account of being discretionary," it said in a report on 15 April.
Last week, Dabur India said its plants will continue to remain shut till 3 May because of the extended lockdown. To that extent, revenues will be hit, but by how much, is what the investors will be looking at in this environment.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!