Dabur India's investments paying rich dividends; sales volume surges 21%

The share price of Dabur India hit an all-time intra-day high of Rs 428.6 on Tuesday, before closing seven per cent higher over the previous close at Rs 420.25. The gains come after the company delivered one of its highest-ever volume growth of 21 per cent for the June 2018 quarter (Q1), ahead of growth estimates of 12-15 per cent. 

The Street enthusiasm seems justified given that Dabur's investments on enhancing product visibility and reach have started paying rich dividends - a trend likely to sustain in the future.

Q1 saw the company’s advertising and publicity spends increase 31.1 per cent (10.6 percentage of revenue) year-on-year - the highest in the past couple of quarters - which helped drive volume growth. 

With this, the consolidated comparable revenue grew by 19.6 per cent year-on-year to Rs 20.81 billion. Dabur CEO Sunil Duggal said high media spends drove the robust growth in volumes in Q1. While urban and rural growth contributed to the Q1 quarters, the latter would rise faster in the future, he added.

"Dabur's initiatives in rural pockets such as Project Buniyad (dedicated to separate sales force and direct reach expansion) and healthy sales force investment augured well for it and is likely to continue in the future," said Nitin Gupta, analyst at SBICAP Securities.

Most importantly, growth was broad-based, with all categories rising sharply in Q1. Hair oil, oral care and food segments —accounting for over 62 per cent of Dabur's domestic FMCG business — reported 17-30 per cent growth. Dabur also clocked a sharp 42 per cent growth in honey in Q1 and regained market share, which was under pressure in the past amid competition from Patanjali.

Moreover, the volume traction, along with improved operating leverage, pushed up Dabur's operating profit margin by 211 basis points, year-on-year in Q1 to 18.6 per cent.

According to Duggal, Dabur's focus would be on volume expansion (expects mid-high teen growth), which, along with improved operating leverage would push up its margin. Price hikes to protect margin from high inflation remain an option. 

With this, and improved performance of international businesses, Dabur's net profit jumped about 25 per cent in Q1, and was a tad higher than expectations.

"Strong rural distribution network will aid Dabur fully leverage rural opportunities, which would help in likely volume outperformance in the near term. With positive operating leverage, Dabur's earnings growth is likely to remain strong," Gupta said.

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