Dabur India Q1 FY2025 Analysis: Key takeaways!!
Dabur India demonstrated solid performance in Q1 FY2025, with consolidated revenue growing by 9.8% in constant currency and 7% in INR terms. The India business, including Badshah, grew by 7.3%, underpinned by volume growth of 5.2%. The company’s diversified portfolio continued to thrive, achieving market share gains in 95% of its product categories. The International business exhibited strong growth of 18.4% in constant currency terms, backed by market share gains in most categories.
Strategic Initiatives:
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Portfolio Diversification: Dabur is focusing on expanding its total addressable market (TAM) by introducing new products and entering new categories. For example, the company launched Hajmola Mr. Aam, extended Odomos into the LVP segment, and introduced Odonil in various formats beyond PDCB blocks.
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Distribution Expansion: The company added 50,000 outlets to its direct reach and increased its presence in 21,000 additional villages. It also added 3,300 Yoddhas (rural sales representatives) to strengthen its rural distribution network.
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Premiumization: Dabur is working on introducing premium offerings in various categories, including Oral Care, to improve its product mix and margins.
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Digital Focus: The company has increased its digital advertising spend to more than 30% of overall media spends, reflecting its focus on reaching consumers through digital channels.
Trends and Themes:
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Rural Recovery: Dabur is witnessing a gradual pickup in rural markets, with sequential improvement in volume growth over the past three quarters.
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E-commerce and Modern Trade Growth: These emerging channels posted robust double-digit growth and now contribute to around 20% of Dabur’s India business.
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Health and Wellness: The company continues to see strong demand for health supplements and ayurvedic products, reflecting the ongoing trend of health-conscious consumer behavior.
Industry Tailwinds:
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Favorable Government Policies: Rural-centric budget initiatives focusing on infrastructure, agriculture, and employment are expected to boost rural demand.
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Normal Monsoon: The timely arrival of monsoon is expected to have a positive impact on rural consumption.
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Declining Inflation: The moderation in inflation is expected to improve consumer sentiment and drive demand.
Industry Headwinds:
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Competitive Intensity: The FMCG sector is witnessing increased competition, particularly in categories like hair oils and beverages.
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Currency Devaluation: Emerging markets like Egypt, Nigeria, and Turkey have experienced currency devaluations, impacting Dabur’s international business performance in INR terms.
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Weather-related Challenges: Extreme weather conditions, such as the recent heatwave, can impact demand for certain products like Chyawanprash.
Analyst Concerns and Management Response:
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Concern: Slow growth in the Juices and Nectars category.
Response: Management acknowledged the challenges in this segment due to increased competition from carbonated beverages. They are focusing on expanding their presence in the drinks and carbonated segments to address this issue. -
Concern: Margin sustainability.
Response: Management expects to maintain or slightly improve margins through a combination of cost-saving initiatives, premiumization, and selective price increases. -
Concern: Performance of the Namaste business.
Response: Management reported progress in achieving corporate separateness for Namaste, reducing legal costs, and negotiating with insurance companies to potentially recover some legal expenses.
Competitive Landscape:
Dabur faces intense competition across various categories:
- Oral Care: Competing with market leaders like Colgate and other ayurvedic players like Patanjali.
- Hair Oils: Facing increased competition from players like Bajaj, particularly in the coconut oil segment.
- Juices and Nectars: Competing with established players like Tropicana and new entrants in the carbonated beverages segment.
Guidance and Outlook:
The management expressed optimism about the gradual uptick in FMCG demand, driven by good monsoon, improving macroeconomic indicators, and rural-centric government spending. They expect subsequent quarters to show better performance than the current quarter.
Capital Allocation Strategy:
The company remains committed to investing behind its brands, with A&P expenditure increasing by around 16% in the quarter. Dabur is also investing in manufacturing capabilities and digital advancements to drive sustainable growth.
Opportunities & Risks:
Opportunities:
- Expansion in the Home Care segment, targeting to reach INR 1,000 crores in revenue.
- Growth in e-commerce and quick commerce channels.
- Potential for market share gains in the ayurvedic and natural products segments.
Risks:
- Continued pressure on the Juices and Nectars category due to competition from carbonated beverages.
- Currency volatility in international markets.
- Potential inflationary pressures in the second half of the fiscal year.
Regulatory Environment:
The company mentioned increased scrutiny of spice exports to international markets, particularly the UK, following recent quality concerns in the industry.
Customer Sentiment:
Management indicated improving consumer sentiment, particularly in rural areas, driven by government initiatives, normal monsoon, and moderating inflation. However, they noted that South India continues to face pressure in terms of demand.
Top 3 Takeaways:
- Rural recovery and portfolio diversification are driving Dabur’s growth.
- The company is successfully expanding its market share across 95% of its portfolio.
- Dabur is focusing on premiumization and expansion into new categories to drive future growth and margin improvement.
The company seem to be doing everything right but still topline doesn’t seem to grow much. Last 2-4 years, Tata have grown foods/Sampann business tremendously, Marico has grown foods/Saffola business decently, Godrej has done fairly well in shaping their innovation product line ups etc. but Dabur doesnt seem to have developed any key category at an eye catching growth rate to understand next growth levers of the company. It seems to be pretty happy with the categories and product lines it already has - something like an HUL and happy with the slow & steady growth with no new big triggers…again correct me if wrong…
Lastly any insights into NEWU - the retail venture of dabur in the high growth beauty products segment. They never speak about this part then why they have ventured into it is not clear. What is growth/profit outlook and long term targets for this retail venture?
Disc: Invested since long as part of core portfolio hence critical & biased. Not a buy/sell recommendation. Post only for learning purposes.
While Dabur’s intention to enter the cosmetics market was sound, the execution challenges and competition from newer players like Nykaa highlight how crucial effective strategy and execution are in a rapidly changing market.
Thats correct, issue is what is now the plan ahead is not clear. The vision and strategy and current performance for this piece of business I am unable to decifer from information available. If anyone aware good to know
Dabur’s entry into the cosmetics market aims to diversify its portfolio, leverage its strong consumer base, and capture growth in the beauty segment. By acquiring brands like NewU and exploring new ventures, hope it expands its market share and capitalize on the booming cosmetics industry.
Performance and demand trends witnessed during the
quarter ended September 30, 2024 (Q2 FY25)
Dabur India is expecting a mid-single-digit drop in revenue for Q2 FY2025, primarily due to weak demand and heavy rains, which have impacted “out of home” consumption. This is the company’s steepest revenue decline in four years, leading to a 7.7% drop in its stock price.
Q2 was a horrible Qtr for most consumer companies. Even for Infra, Cement companies - it was a really bad Qtr
One of the biggest reason was the slowdown in Govt spending ( due new Govt formation ). Govt spending is expected to accelerate in Q3, Q4 ( to make up for slow spending in Q1, Q2 )
This weak Govt spending led to moderation in economic activity across sectors. It got reflected in tepid GST collections, monthly PMI data, consumer spending, auto sales etc
As the govt spending kicks in - in all likelihood, all this is expected to reverse sharply
Going by this logic - Dabur does look like a descent buy ( Disc : I ve also started buying )
Dabur India -
Q2 FY 25 results and concall highlights -
Sales - 3029 vs 3204 cr, down 5 pc
EBITDA - 553 vs 661 cr, down 16 pc ( margins @ 18 vs 21 pc )
PAT - 418 vs 507 cr, down 17 pc
Company took up a one time exercise to rationalise General Trade’s inventory to improve the channel’s RoI. Domestic business’s primary sales declined 7.6 pc vs a 2 pc growth in secondary sales. International business reported a 13 pc constant currency sales
Segment wise sales distribution in domestic mkt -
Home and personal care - 1035 cr, down 8 pc ( secondary sales were up 6 pc )
Healthcare - 598 cr, down 10 pc ( secondary sales were up 4 pc )
Foods and Beverages - 317 cr, down 20 pc ( secondary sales were down 11 pc )
International business - 847 cr, 13 pc constant currency sales growth { Intl sales contribute 28 pc to overall sales pie - led by Egypt ( 73 pc of Intl sales ) and Sub Saharan Africa ( 26 pc of intl sales ) }
Home and personal care - Sub Segmental value growth ( secondary ) -
Oral Care - 5 pc
Hair Oils - 4 pc
Shampoos - 3 pc
Home Care - 9 pc
Skin Care - flat
Healthcare - Sub Segmental value growth ( secondary ) -
Health supplements - 3 pc
Digestives - 6 pc
OTC and Ethicals - flat
Hajmola’s Jeera drink showed good traction
Health Juices + Shilajit and Baby care range grew in strong double digits ( @ 20 and 30 pc respectively )
Honitus grew strongly and gained Mkt share
Foods and Beverages - Sub Segmental value growth ( secondary ) -
Foods - 20 pc
Beverages - (-) 11 pc
Heavy and prolonged monsoons adversely impacted the Beverage sales
Foods business grew strongly with Edible Oils and Ghee growing by 70 pc
Dabur Homemade portfolio and Badshah masalas also grew strongly ( @ 15 pc YoY )
Future Growth levers -
Ramping up growth in Oralcare Gels, Meswak and Clove portfolios
Expanding distribution into Morocco, Algeria, Eastern Europe, CIS countries
Ramping up Odomos liquid vaporisers, Expanding the Odonil portfolio
Scale up of premium range of Ghee and Cold pressed oils
Launch of premium Condiments and Ayurvedic hair oils
Company entered premium Hair oils category in Q3 by acquiring 51 pc stake Sesa Care Pvt ltd in Oct 24. Sesa has a consolidated turnover of 133 cr and gives Dabur an entry into the 1400 cr premium ayurvedic hair oils category
Company is witnessing tailwinds in their oral care portfolio towards Ayurvedic categories. Even in the International mkts like Egypt and Sub Sharan Africa, company has almost run out of capacities for Oral care and Hair care products
With the price war in Colas category ( due launch of Campa Cola ), the Juices are now priced at a 2.7X premium to Colas which earlier used to be 2.1X. Hence the company is slated to introduce lower price packs to counter this. Company did feel some consumer preferences shift away from juices towards fizzy / cola drinks because of this
Company believes, they can have lower priced packs and still maintain their margins as they r also launching a lot of premium priced drinks to offset the margins impact
Company is seeing good rural demand and gave out commentary that they expect the urban slowdown to have bottomed out in Q2
The inventory correction that the company undertook in Q2 is completely over and will have no impact on Q3
Company launched their cooling oil brand - Cool King LY. Already doing yearly business of around 25 cr which is encouraging
Company’s hair oils business makes 44 pc gross margins vs 57 pc gross margins for the acquired portfolio of Sesa hair oils
Company expects to clock mid to high single digit growth for H2
Quick commerce is having a meaningful impact on both GT and Modern trade channels. Its evident from the pressures being felt by the likes of DMart, Reliance Retail etc
Company intends to expand its product wise distribution in the GT in rural India. At the same time, they intend to consolidate their distributors in Urban areas because of competition from new age channels
The bulk of pressure on the beverages portfolio for the company came from Eastern India which saw a lot of flooding and the wettest monsoon in recent history. Except for Eastern India, company’s beverages portfolio comprising of Coconut Water, Real juices, Real Active juices and the fizzy / carbonated drinks did reasonably well. Real Active is the premium part of the portfolio and has the highest margins. All components of company’s beverages business ( like Real Active, Fizzy drinks, Coconut water ) did extremely well except the Real Juices which declined by 12 pc led by the lower off takes in Eastern India
Company used to supply to quick commerce players via their GT stockists. But now, they supply directly to the quick commerce players - directly to their dark stores
Company’s margins are about 1 -2 pc higher in Quick Commerce vs E-Comm / Modern Trade / GT
Now even Tatas, Flipkart, Amazon are entering the quick commerce space. This augurs well for the company as with so many players, the shift in bargaining power from FMCG companies to platforms is unlikely to happen
Disc: initiated a contrarian trading position, expecting / hoping for a demand recovery in H2, not a buy/sell recommendation, biased, not SEBI registered
DABUR | Management Interview
a. Management is hoping the worse will be behind us in the next one year
b. E-comm and Q-comm have given a lot of opportunity
c. Overall inflation is inching up and is expected to be higher
d. Exercising some caution going ahead due to inflation
e. Looking To Step Up The Price Hike Structure
f. Will Only See Improvement From Here
g. Home & Personal Care Saw Volume Growth Of 6%
h. Badshah Business Has Shown 15% Volume Growth In Q3
i. Urban Market Has Bottomed Out