While Dabur India Ltd is relatively better positioned in terms of margin pressure than its fast-moving consumer goods (FMCG) peers, its large presence in rural markets is a deterrent. The company in its business update for the June quarter (Q1FY23) indicated that higher inflation levels weighed on the wallet share for consumer staples and this was observed in both urban and rural markets.
In general, the urban economy is improving but the rural economy is yet to pick up. According to Edelweiss Securities, in India’s business, Dabur receives 45% of its sales from rural markets.
In Q1FY23, Dabur’s India business will record high single-digit revenue growth year-on-year (YoY) as a result of mid-single digit volume growth along with price increases. Note that this is on a higher basis as revenue grew by 35.4% in Q1FY22.
Growth in Q1FY23 is being driven by strong performance in the Food & Beverages vertical and the Home & Personal Care portfolio. This will be partially offset by weak performance in the healthcare sector due to a higher base due to the second wave of coronavirus last year.
Low single-digit growth in international trade is expected mainly due to currency devaluation of the Turkish lira. At a consolidated level, Dabur expects revenue to grow in the mid to high single digits.
“The medium-term and structural narratives on revenue growth are highly compelling, led by the new CEO’s initiatives on power brands, distribution, launches and improved analytics in recent years. Consequently, FY13 is likely to be the fourth year of five-digit sales growth,” said analysts at Motilal Oswal Financial Services in a report on July 6.
In terms of margins, Q1FY23 operating margin will be down 200 basis points year-on-year, driven by higher input costs from crude oil derivatives, vegetable oil, honey and other agro-based commodities. One basis point is 0.01%. However, the company said that it is in line with the pre-Covid level. Recall that operating margins in Q1FY22 and Q1FY21, which stood at around 21%, were driven by Covid-led growth in the healthcare vertical.
Meanwhile, Dabur shares are down nearly 17% from the 52-week high seen on September 24. A healthy rebound in rural demand will remain important. So, the expectations of normal monsoon are good.
Analysts at Edelweiss said, “We expect volume growth for Dabur on the back of higher growth in fruit juices due to increasing mobility, innovations and company-specific strategies as well as expanding herbal market and strengthening rural distribution. Will stay.” Securities in a report dated July 6.
He further added, “Dabur is well positioned to capitalize on the increasing preference of consumers for herbal and natural products.”