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While Dabur India Ltd is relatively better placed in terms of margin pressures when compared to its fast-moving consumer goods (FMCG) peers, its sizeable presence in the rural markets is a snag. The company in its business update for the June quarter (Q1FY23) indicated that elevated levels of inflation weighed on the wallet share for consumer staples and this was seen across both the urban and rural markets.

In general, the urban economy is staging a recovery but the rural economy is yet to pick up pace. In the India business, Dabur derives 45% of sales from rural markets, according to Edelweiss Securities.

In Q1FY23, price increases coupled with mid-single digit volume growth would result in Dabur’s India business reporting high single digit revenue growth year-on-year (y-o-y). Note that this is on a high base as revenue in Q1FY22 was up by 35.4%.

The growth in Q1FY23 is being driven by strong performance in food & beverages vertical and home & personal care portfolio. This would be partly offset by a weak show in the healthcare segment owing to high base in last year led by second wave of coronavirus.

The international business is expected to clock low single digit growth primarily due to currency devaluation of Turkish Lira. At the consolidated level, Dabur expects revenue to grow by mid to high single digits.

“The medium-term and structural narratives on revenue growth are highly attractive, led by the initiatives taken by the new CEO in recent years on power brands, distribution, launches, and better analytics. Consequently, FY23 is likely to be the fourth year, out of five, of double-digit sales growth," said analysts at Motilal Oswal Financial Services in a report on 6 July.

Speaking of margins, higher input costs of commodities such as crude led derivatives, vegetable oils, honey and other agri-based commodities would lead to Q1FY23 operating margin being lower by 200 basis points year-on-year. One basis point is 0.01%. However, the company said that this is in line with the pre-Covid level. Recall that operating margins in Q1FY22 and Q1FY21, which were around 21%, were boosted by Covid-led growth in the healthcare vertical.

Meanwhile, shares of Dabur are nearly 17% down from the 52-week high seen on 24 September. A healthy rebound in rural demand would remain key. As such, the expectations of normal monsoon bode well.

“We expect volumes growth for Dabur to remain good on the back of high-growth in fruit juices due to rising mobility, innovations and company-specific strategies, as well as expansion of the herbal market and strengthening rural distribution," said analysts at Edelweiss Securities in a report on 6 July.

They further added, “Dabur is well placed to capitalise on consumers’ increasing preference for herbal and natural products."

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