Dabur: Not enough juice

Over the past year Dabur has underperformed the BSE FMCG index by about 25 per cent, ever since it announced a foray into the health and beauty retail space. But it’s not simply the retail venture, that will require investments and, therefore, could post losses for some time, that is cause for concern. The FMCG firm, which sells everything from juices to shampoos and mosquito repellents, faces severe competition across categories both from national and store brands. In an increasingly cluttered market, it would need to spend more on advertising to sustain the brands and push new launches,besides, keeping prices competitive to ensure adequate volumes. And that could impact top line growth and consequently margins.

Even without too much competition, top line growth at the Rs 2197 crore Dabur has been slowing, the growth varying between 11 and 20 per cent in the last four quarters. Only one quarter of the four has seen higher growth than the corresponding quarter of the previous year.

For the December 2007 quarter, the growth at 14.7 per cent was slightly lower than that in Q3FY07 driven by a strong increase in top line from the shampoo, toothpaste and foods businesses.

In fact, the growth in the September 2008 quarter at 12.4 per cent was way below the 21 per cent seen in the September 2007 quarter.

Operating margins in the last four quarters have fluctuated between 14 per cent and 18.5 per cent. In the December 2007 quarter, the margins were flat at just under 18 per cent despite lower input costs and price increases.

Overall, the consumer healthcare and homecare categories saw sluggish revenue growth. Looking ahead, while Dabur has several growth businesses, it is perhaps present in too many categories to ensure adequate focus.

At the current price of Rs 100, the stock trades at 20 times estimated FY09 earnings and is expensive given that earnings are unlikely to grow at more than 18-19 per cent in FY09 and FY10.