Domestic revival to aid Dabur’s volume growth

Amazon tie-up to boost international revenues

The Dabur stock, which was up two per cent on Thursday, could see some uptick as factors such as domestic market recovery, its tie-up with Amazon and plans to improve its share in key categories are expected to rub off on revenues and market share. The nearterm trigger would come from volume pick-up in the domestic market.

Given de-stocking by traders ahead of implementation of the goods and services tax, Dabur’s June quarter volumes fell 4.4 per cent, while margins declined 142 basis points to 16.4 per cent year-onyear (y-o-y). Margin pressures could continue in the September quarter, given higher advertising spending on account of product launches.

While a slowing economy, especially demand from the wholesale channel, could weigh on volumes, restocking is healthy in Dabur’s direct network and organised retail since July. This with healthy underlying demand, could lead to high single-digit volume growth in the September quarter, according to Naveen Trivedi of HDFC Securities.

Also, a meaningful improvement in consumer offtake, revival in the monsoon and expectation of growth in rural demand (45 per cent of revenue) could reflect in the coming quarters, he said.

Dabur offers products in eight categories. Of this, the management expects good revenue growth in over-thecounter, ethicals and skincare products compared with the past two years. The segments together account for 12 per cent of revenue. It is also eyeing the second spot in the oral care segment (18 per cent of revenue), with brands such as Red, Babool and Meswak.

Another trigger is Dabur’s recent tie-up with Amazon to expand global footprint, especially in the US. Dabur will initially sell 30 of its products, including honey, Vatika hair oil, Meswak toothpaste, Red toothpaste and Chyawanprash on the etailer’s global marketplace. Depending on the response, Dabur will add another 80 products by the end of 2017. The company will also offer exclusive products to Amazon’s global customers.

The international business (a third of revenue) has been under pressure due to geopolitical issues and unfavourable movements in currencies, especially in Egypt, Turkey and Nigeria. Given the demand environment in West Asia and the North African region, revenue from international business was down 16 per cent y-o-y in the June quarter. But, recent acquisitions in Africa, geographical expansions and a recovery in Dabur’s Namaste business in the US are expected to help.

Analysts are upbeat on Dabur, led by expectation of a revival in volume offtake and improving market share. Half of the eight analysts polled by Bloomberg in September have a ‘buy’ on the stock, while the rest have a ‘hold’ rating, with their average target price at ~321.