Dabur India Ltd Results: New products add to Q1FY23 profits in an inflationary environment

Dabur India Ltd is one of India’s largest FMCG companies. With a range of over 250 Herbal/Ayurvedic products, the firm is also a world leader in Ayurveda. The company is involved in consumer product categories such as Hair Care, Oral Care, Health Care, Skin Care, Home Care, and Foods. Dabur, the master brand for natural healthcare products, Vatika for premium personal care, Hajmola for digestives, Real for fruit juices and beverages, and Fem for fairness bleaches and skin care products comprise the company’s FMCG portfolio.

It has a large distribution network that covers 6 million retail outlets and has a strong presence in both urban and rural regions. Their products are also exported to over 120 countries worldwide. Their brands are well-known in the Middle East, SAARC countries, Africa, the United States, Europe, and Russia. Dabur’s overseas revenue accounts for more than 30% of overall revenue.

Let’s see more about the fundamentals of Dabur India Ltd shares and analyze their Q1FY23 results  performance.

Key Highlights of Dabur India Ltd Q1FY23 Results

• Revenue from operations in Q1FY23 stood at Rs 2,822.43 crore, an increase of 12% QoQ up from 2,518 crores in Q4FY22 and rose 8% YoY from Rs 2,612 crores in Q1FY22
• The company reported a net profit of 440.32 crores in Q1FY23, which rose by 49.56% QoQ compared to a net profit of Rs. 294.22 crores in Q4FY22.
• Dabur India recorded EPS of 2.48 for Q1FY23, compared to Rs. 1.66 in Q4FY22
• In Q1FY23, sales contribution of different verticals was, HPC (health and personal care) at 1%, Healthcare at 25.7% and F&B (food and beverages) at 26.7%
• EBITDA for Q1FY23 was at Rs 543.7 crore, a 1.5% decrease year on year, with EBITDA margins of 3%.

Revenue grew 8.1 % YoY to Rs 2,822.4 crores in Q1FY23

Dabur’s revenue increased by 8.1% to Rs 2,822.4 crore, led by a 51% increase in the foods business (which mostly comprises the beverage brand ‘Real’).

Consumer care industry sales fell 1.4 %, owing primarily to a large base of health supplements (Chyawanprash & Honey). Growth rates for hair oils, shampoos, oral care, and home care products were 8.1 %, 17 %, 12.5 %, and 51.9 % respectively. However, on a high base of the previous two years, the health supplement and OTC & ethicals businesses suffered de-growth of 35.5 % and 15.4 %, respectively. The beverage (real) and food industries grew by 50.7 % and 35.7 %, respectively.

The Home Care business increased by 52%, while the Skin & Salon business increased by 11.4 % during the quarter. The Oral Care business grew 12.5 % in the quarter, thanks to the robust success of our Toothpaste brands. Sustained demand for Hajmola and PudinHara aided the Digestives company to a 31% increase in the third quarter.

In the first quarter, the skin care segment climbed by 11.4%. However, on a three-year CAGR basis, it has remained flat. Sanitiser sales have nearly halved from Rs 100 crore during the peak Covid period. This has had an effect on the category’s growth.

Operating profit dipped 1.5% YoY but rose 49.55% QoQ to Rs 543.7 crore

Operating profit fell 1.5 % YoY to Rs 543.7 crore, and the operating margin shrank by 188 basis points. Higher other income and lesser tax provisioning resulted in a 1% increase in net profit to Rs 441.1 crore.

Though price increases in toothpaste, skincare, home care, and foods, the company has been able to pass on inflation. However, due to tight competition, pricing action in hair oils is delayed. As a result, there is margin compression. The price increases are also affected by the pricing actions of the competitors. In the hair oil sector, the company has a 15-16% market share.

With rising crude-based packaging material inflation and a reduction in the health supplement portfolio’s sales, gross margins shrank by 224 basis points. The 100 basis point drop in gross margins is attributed to a shift in mix, with the remainder related to commodity inflation. Due to increasing fuel prices, overhead spending increased by 160 basis points (diesel). However, the company was able to save 164 bps in advertisement and 32 bps in employee spending.

New Launches in different segments

The company has introduced numerous new beverage types, including Real Chocolate frappe and Dabur Kesaria Thandai. Fruit beverage sales are expected to exceed Rs 200 crore in FY23. The company’s sales target for the next three years is Rs 500 crore. Though beverage gross margins are relatively low, scale benefits and the market size are substantially larger.

Dabur Castor Oil, Dabur Shudd Shilajit, Dabur Shodhit Guggulu, Dabur Aampachak Kadha, and Dabur Gulkand were launched under the OTC & ethicals area.

The company released ‘Vatika Neelibhriga21’ in the Premium Ayurveda therapeutic oil market in the hair oil category. Odonil increased its market share in home care by 190 basis points. During the quarter, it also introduced Odonil Neem, a new variant.

Extensive rural distribution expansion & e-commerce presence

In comparison to the current coverage of 90,000 villages, the firm plans to expand its village distribution network to 100,000 villages. Direct distribution in urban areas would expand to 1.4 million outlets during FY23 from 1.2 million in FY22. In FY23, the firm plans to expand by 6,000 chemist stores. Ecommerce revenues account for 9% of the company’s total sales.

The company has introduced numerous new beverage types, including Real Chocolate frappe and Dabur Kesaria Thandai. Fruit beverage sales are expected to exceed Rs 200 crore in FY23. The company’s sales target for the next three years is Rs 500 crore. Though beverage gross margins are relatively low, scale benefits and market size are substantially larger.

Patanjali’s market share in oral care has decreased from 13% to 9.7%. However, the natural and Ayurvedic segment in dental care has grown to 30% of the market and is growing faster than the entire category.

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Mixed results in international business:

In constant currency, international trade increased by 8%. Growth has averaged 5% during the last three years. Egypt, Saarc, SSA, and Hobby business increased by 17.5 %, 17.3 %, 35.4 %, and 88.3 %, respectively. However, sales in Namaste (US) and the MENA area fell 10.3 % and 3%, respectively. The Turkish Lira’s depreciation is a hindrance.

Consolidated gross margin fell 225 basis points year on year to 45.9 %, owing to inflationary headwinds in most input costs, which were marginally offset by price and a poor product mix (a larger contribution from beverages). The EBITDA margin shrank 188 basis points year on year to 19.3 %, despite a 26 % YoY increase in other expenses. Management stated that they are followers in a few price increase sectors, reflecting a concentration on market share. Management forecasted 9% inflation in the coming year (on a largely comparable base), with modest relief in 2HFY23.

Technical Analysis

Dabur India’s stock share price saw an upsurge in the market price in the last few trading sessions. On the daily frame chart, the stock is moving above both EMA200 and EMA 50 which makes it a bullish stock. RSI is 64.5, and RSI above 70 is considered overbought. This implies that the stock may show a pullback in some days. Also, It broke the resistance of price level 560-570 with good volume. If it sustains this level, we can see a good upcoming target in the upcoming days. The stock has bounced from the lowest level of the downtrend and is likely to see a change in trend. This would be confirmed once it crosses the next resistance level of 620.

Our view

Dabur has maintained its growth strategy of new product launches, advancements, and forays into newer industries. Though growth in the health supplement business has slowed in recent quarters, the increase in the beverage category has more than compensated for the drop in health supplement sales.

Given that herbs and agricultural products make up the majority of the company’s raw materials, Dabur has the lowest profit impact among FMCG firms. We believe the company will be able to leverage its brands Dabur, Real, and Vatika by expanding into new areas.

We also feel Dabur has the potential to increase its operating margins in the future because its reliance on imported raw materials is the lowest among FMCG firms. This is expected to improve with raw material prices starting to cool off from their peak levels. With a good set of numbers this quarter, the stock of Dabur is ready to move higher from here beginning a new uptrend on the charts as well.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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