Dabur India Ltd shares are down over 3% in Thursday’s morning trade on the National Stock Exchange. The fast-moving consumer goods company’s update for the March quarter (Q4FY23) has failed to boost investor sentiment.
Dabur’s consolidated revenue is expected to grow mid-single digits year-on-year (y-o-y) year-on-year (y-o-y), but its gross margin will face pressure in the fourth quarter. Note that the metric stood at 45.5% in Q3, which at the time represented the seventh consecutive quarter of gross margin decline.
What’s more, Dabur increased its advertising spend in the fourth quarter, which further compounded the year-on-year operating margin decline. The company expects the measure to be 200-250 basis points (bps) lower year-on-year in Q4. In Q1-Q3, this measure was reduced to 130-190bps. A basis point is one hundredth of a percentage point.
The sluggish margin performance comes even as commodity inflation has largely calmed down. The main factor for the decline in gross margin is the inverse currency movement in the company’s international business.
In view of this, the revenue growth in this segment will also be affected. However, in constant currency terms, Dabur is expected to see revenue growth in high-single digits.
Dabur’s India business, on the other hand, is in a comparatively better position. The company is expected to report mid-single digit revenue growth. This came on the back of a strong performance in its Foods and Beverages vertical. In addition, year-over-year growth in the Healthcare portfolio is expected to continue the momentum seen in the third quarter. However, the personal care category saw a dip in demand for the products.
To be sure, demand in rural markets remains muted. Marico Ltd also noted a slowdown in rural demand in its Q4 update. However, there is a silver lining as Dabur is seeing some green signals. These include reduction in inflation, improvement in consumer confidence and increase in government spending. Dabur said in the update that the urban markets have returned to positive volume growth.
Therefore, it is important to track volume growth in Q4. In Q3, volumes in Dabur’s India business declined by about 3% year-on-year.
All said, Dabur shares are down 13% from the 52-week high of Rs 610.75 seen in December.
Know your inner investor
Do you have guts of steel or are you a victim of insomnia regarding your investments? Let’s define your investment approach.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.