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Dabur net spurts 17% on strong volume growth

Wednesday, 30 April 2014 - 9:05am IST | Place: Mumbai | Agency: dna

Led by a strong volume growth, Dabur India, the fourth largest FMCG player, reported a 17.3% year-on-year (yoy) growth in January-March at consolidated net profit at Rs 235.3 crore, exceeding market expectations.

Consolidated sales rose 15.5% Rs 1,769 crore.

While consolidated operating profit increased 15.7% to Rs 333.8 crore, operating-profit margin for the quarter ended March 2014 improved marginally to 18.9% versus 18.8% yoy.

Sunil Duggal, CEO, Dabur India, said the year has ended well with business momentum remaining strong in spite of a challenging macro environment, volatility and input costs.

"Our strategy to invest strongly in brands and distribution channels has enabled us to meet the challenges and continue on the growth trajectory. Advertising and publicity (A&P) as a percentage of sales increased to 12.9% as against 12.5% yoy, as a result net profit grew 17.3%. Materials cost as a percentage of sales was stable, though there were pockets of inflation in the domestic business," said Duggal said in an earnings call on Tuesday.

V Srinivasan, research analyst-FMCG, Angel Broking, said the company's topline growth was aided by 9.4% volume growth.

"Dabur's volume and value growth remained healthy despite the slowdown in the domestic FMCG industry. Operating profit margin fell 60 basis points yoy to 16.4% due to higher raw material, employee and other expenses," said Srinivasan.

While most segments have performed strongly, analysts said, hair care continued to register weak performance, which was an industry-wide phenomenon.

Ritwik Rai, analyst - FMCG , Kotak Securities, said quality of earnings remains strong and company continues to outperform FMCG industry growth.

"The company has met our profit estimates even as advertising and promotions expenses have come in ahead of our expectations – over 40 basis points yoy growth in A&P expenses as percentage of sales," said Rai.

International business contributed to 30% of consolidated sales during fourth quarter with strong performance in Gulf Cooperation Council, Egypt and Levant (comprising Yemen, Jordan, Lebanon & Syria) markets. Growth in international business was 19.7%, however, commodity exports remained flat. Domestic FMCG business comprising consumer care and foods reported growth of 14%.

While Dabur has managed to control losses in the retail business (health, beauty and wellness products) operated under the banner NewU, the management has been continuously investing and growing the business. The company management said that investments are being made largely to fund small amount of losses – Rs 3-4 crore annually.

"It's not a strategic business and we don't intend to keep it longer than necessary. We are building the business to improve its valuation for an eventual strategic tie-up or divestment at a profitable price. And to do that we need to have at least 100 store footprint as compared with 50 at present. The challenge is to ramp up to 100 stores without increasing the quantum of loss. We have a very calibrated way of pursuing this business, have more store openings but with strong checks to ensure that losses are capped to current levels," Duggal said.

He said the company will continue to focus on innovation and expansion of business across categories and geographies to deliver growth and value in the current fiscal.

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