Industry

Dabur Q2: weak sales offset by lower material costs, but demand remains soft

When the India-Nepal roads reopen, Dabur India will push its juice packs back into the market, which will see sales surge. Photo: Priyanka Parashar/Mint

When the India-Nepal roads reopen, Dabur India will push its juice packs back into the market, which will see sales surge. Photo: Priyanka Parashar/Mint

The blocking of goods traffic between India and Nepal claimed an unlikely victim. Dabur India Ltd’s beverages business was hit by a lack of supplies, which affected sales growth. Excluding beverages, volume sales growth was 7%, but still less than the June quarter’s 8.1% expansion.

The management said growth in rural markets continued to be ahead of those in urban areas. However, rural growth has slowed down. Urban demand seen in general trade (kirana or grocery stores) is not picking up, but sales to modern trade outlets are doing better. Slowing volume growth and low price increases, or even declines, are affecting sales growth.

Overall, Dabur India’s sales grew by 8.7%, with domestic and international businesses contributing almost equally to it. Excluding the foods business, sales grew by 9.5%. Domestic sales contribute about two-thirds of the total and international the rest.

In the domestic business, oral care, health supplements, hair care, home care and OTC (over-the-counter) did relatively better. In hair care, oils did well, but shampoos suffered due to price cuts as competitors cut prices. Skin care and digestives have been two underperforming categories. In the international business, sales growth in constant currency terms was lower at 6.4%. The second half is expected to see better growth.

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While sales growth was middling, lower material costs resulted in improved profitability. The company’s operating profit margin rose by 1.1 percentage points over a year ago and by 3.8 percentage points sequentially. Its net profit rose by 18.7%, which is good under the circumstances.

What next? When the India-Nepal roads reopen, Dabur India will push its juice packs back into the market, which will see sales surge. This quarter will also see the onset of winter, which should see health supplement (chyawanprash) sales increase. The festival season effect may also bump up sales a bit.

But the bigger problems remain. The company expects rural demand to remain soft until there are some positive signs. Better crop support prices or a good winter crop could turn sentiment. Urban markets remain lacklustre. If inflation remains low, these factors will combine to keep sales growth low. Worse, at some point the additions to margins from input cost savings could level off.

Dabur India’s stock has gained by 27% in one year even after falling off its high seen in early August. Many of the factors hurting its performance are external. It gives hope that the company can do well when things change for the better. Till there are signs of these changes happening, its share may continue to be under pressure. Since early August, the stock has lost 12% in value.

The writer does not own shares in the above-mentioned companies.

[“source -livemint”]

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