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Dabur’s domestic volume growth is in good health

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Dabur

Dabur India Ltd’s March quarter results did not excite investors despite a smart recovery in domestic volume growth. Net sales rose by a relatively modest 12% to Rs.1,531 crore over the year-ago quarter, similar to the growth rate seen in the December quarter. The company’s domestic business sales rose by 15.1%, while its international business grew by 11.6%.

But the real highlight of Dabur’s results was its volume growth of 12.3% in the domestic business, against 9.5% in the preceding quarter, indicating that price played a small role in sales growth. The company is adopting a cautious stance towards price increases, and said it now expects to increase prices, on an average, by about 2-3% in the current fiscal year, from the 4-5% it was originally contemplating. A significant decline in input costs gives it the cushion to do that without affecting margins. But investors may have been expecting to get twin benefits of falling input costs and price hikes.

Dabur’s domestic business benefited from its initiatives to drive growth in rural markets and also from a recovery in sales to the canteen stores department (CSD). In previous quarters, slower sales to CSD had affected volume growth. Its health supplements and home care segments were the stars of the quarter, with sales rising by 22.6% and 33.3%, respectively.

Hair care and skincare were relative underperformers, with 9.6% and 11.1% sales growth, respectively. Hair care suffered because of a slowdown in the hair oil segment, as a fall in coconut prices affected demand for Dabur’s product. The skincare segment has been suffering from a slowdown in demand for discretionary products. The foods business grew by 22.6%, but its segment profit was flat.

Dabur’s operating profit benefited from benign raw material costs, and its operating profit margin for the March quarter rose by 1.5 percentage points over the year-ago period and by 1.3 percentage points sequentially. While the company does believe that this increase in margins is sustainable, if commodity prices reverse trend it may not be sustained. It does not intend to hike prices, simply to maintain or increase margins, at the cost of hurting demand.

The company is, therefore, following a sensible strategy of trying to take up market share and growth, and using the fall in input costs to shore up margins. What investors would like to see is broad-based growth in its various consumer categories and a return to more robust growth levels in its international business, especially in the Namaste hair care products business. Dabur’s share rose by 0.61% on Tuesday, after its results were announced. Its net profit grew by 17.6%, which is good considering that it is backed by healthy volume growth.

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