FMCG major Dabur India Ltd surprised the Street with a record double-digit volume growth in the September quarter. Dabur’s domestic business grew 16.8% year-on-year (y-o-y), much higher than the anticipated mid-single-digit growth.
The health scare caused by the pandemic led to robust growth in its healthcare business. Contribution of its healthcare portfolio to overall sales increased from 31.8% in Q2FY20 to 39.6% in Q2FY21. The healthcare segment’s revenues rose around 50% y-o-y.
Within the healthcare segment, sales of Dabur Chyawanprash grew more than two times, the management said. Dabur’s market share in this category, too, grew by 190 basis points. One basis point is one hundredth of a percentage point. Dabur Honey also saw double-digit sales growth in the quarter. The management told analysts that its market penetration for both products improved compared to last year.
However, analysts are wary of high growth sustaining in this segment after the pandemic-related tailwinds subside.
Among other segments, home and personal care reported 9.1% growth in revenues. While this pales in comparison to the healthcare business, the growth is decent. International business revenues grew 5.5% y-o-y in Q2. The management attributed muted performance of international business to Middle Eastern and Sub-Sahara regions. Overall macro environment in the Middle East was impacted by weak oil price, it added, but expects business to recover from the current quarter.
The company aims to maintain consolidated operating margins at the current 22%. Given the slew of new launches, the management expects advertisement spends to increase. Even though advertisement spends increased by around 40% in the quarter, Dabur’s ad spend-to-revenue ratio at 8% is still lower than 12% of larger peers.
So, there is catching up to do to promote new products, it said.
As far as cost inflation is concerned, the management said over 50% of raw material is agriculture-related. So, it is contemplating price hikes in select portfolios.
Net-net, Dabur posted impressive performance on key earnings parameters. Consolidated revenue grew 13.7% y-o-y to ₹2,516 crore. Consolidated net profit was up 19.5% y-o-y to ₹481.7 crore.
Following the earnings announcement, the stock rose more than 3% intraday on the NSE on Tuesday. It ended the day’s session in the green at ₹517.80.
The stock is trading at a one-year forward price-to-earnings multiple of around 48 times. Peers Marico Ltd and Godrej Consumer Products Ltd are trading at multiples of around 37 times and 36 times, respectively.
Dabur’s valuation looks comparatively pricey, but its robust earnings performance should provide comfort to investors.