Dabur India has recorded robust consolidated sales growth of around 20 per cent y-o-y at Rs 925 crore and surpassed analysts’ expectations of 12.3 per cent rise in revenues.

Growth has largely been fueled by stronger-than-expected 19.5 per cent surge in volumes, which contributed 90 per cent for the rise in sales. Not only Dabur's domestic revenues’ growth of 17.4 per cent at Rs 755 crore has been strongest in last four quarters, but also its international operations (around 20 per cent to total sales) has also reported robust growth of 30.8 per cent in revenues at Rs 170 crore.
 
Two largest segments such as consumer care (hair care, oral care, health supplements, homecare and skincare)  and foods  have witnessed strong traction in business especially in the domestic market, as they reported a healthy growth of 20.5 per cent and 24 per cent in sales at Rs 704 crore and Rs 132 crore, respectively.

Despite strong topline growth, markets have reacted negatively to the company’s results. Profitability has been flat and has come lower-than-expectations despite price increases undertaken (5 per cent in Amla oil, glucose and Babool gel).

Consolidated operating profit margin (OPM) at 15.6 per cent has been almost flat – and is lower than 16.5 per cent expected – mainly due to flat performance of consumer care business though foods business has seen a significant 450 basis points (bps) expansion in PBIT (profit before interest and tax) margin. While employee, advertising and other expenses has been controlled, raw material costs as a percentage to sales, which was on a declining trend y-o-y since June 2009 quarter, has shot almost 600 basis points to 45.2 per cent.

Geographically, international OPM has expanded by 400 basis points to 16 per cent while domestic OPM has been marginally down by 60 bps to 15.5 per cent, which is in contrast to expectations. There was no expansion in consolidated net profit margin (NPM) at 11.5 per cent either, though international NPM has expanded 350 bps at 10 per cent. A 74 per cent decline in interest cost was compensated by 31 per cent jump in depreciation and taxation taken together.

The company’s acquisition of balance 7.85 per cent stake in Fem Care will help diversifying into bleaches, where Fem is the market leader. Also synergies between the two companies should help.

The company’s wholly owned subsidiary, Dabur International Ltd. has entered into agreement to acquire 100 per cent stake in Turkey based leading personal care company i.e. Hobi Group firms- Hobi Kozmetik, Zeki Plastik and Ra Pazarlama at a total consideration of $69 million. This acquisition, which is likely to be completed by Q3FY11, is in line with its inorganic growth strategy particularly in the personal care and healthcare segment and in emerging economies including Nepal and Bangladeah.

Hoby Kozmetik is a market leader in hair gel category and sells a wide variety of haircare and skincare products across 35 countries including Middel East and North Africa under brand names ‘Hobby’ and ‘New Era’. Analysts are positive on the company’s recent acquisition and expect more such deals to be finalized in this fiscal.

Despite rewarding shareholders with 1:1 bonus, the stock tumbled 3.7 per cent yesterday after being up by about 1.5 per cent before the announcement of results in contrast to marginal rise of 0.1 per cent in BSE FMCG index and a decline of 0.6 per cent in the Sensex.

At Rs 204, it trades at 26 times FY12 average estimated earnings, which is highest after Nestlé’s 30 times in the FMCG space. Though analysts like the company due to its market leadership in niche business areas like chawanprash, juices and ayurved products, its high valuation makes its prone to fall more than its peers in the event of market correction. Also, the impact of competitive pressures and rising input costs needs to be watched out.