Dabur India Ltd, a leading fast-moving consumer goods company, has been closely monitoring the recovery of rural markets as it plays a crucial role in the company’s overall performance. The company has witnessed a subdued volume performance in the past few quarters, with rural areas experiencing slower growth compared to urban markets. However, there are early signs of a revival in consumption, which could help drive volume growth for the company. Analysts estimate that rural markets account for 45-50% of Dabur’s revenue, making the recovery in these areas crucial for the company’s overall success.
Dabur’s business update for the December quarter (Q3FY24) indicates a sequential improvement in demand, providing some comfort to investors. Despite the lag in rural markets, Dabur has witnessed a pick-up in rural demand, which is expected to benefit the company in the coming quarters. This positive trend aligns with similar demand patterns observed in the FMCG sector on a sequential basis.
Analysts expect Dabur’s domestic volume to have grown by 4% year-on-year in Q3, following a 3% growth in the previous quarter. The food and beverage segment is expected to grow in high-single digits, while the home and personal care business is likely to achieve mid-single-digit growth. However, the delay in the onset of winter chills may impact Dabur’s healthcare business, which is expected to grow in low-to-mid single digits.
Dabur’s international business has continued to exhibit robust momentum, with double-digit growth in constant currency terms during Q3. This performance has contributed to the company’s overall revenue growth, which is expected to be in the mid-to-high single digits for the third quarter. However, currency headwinds have impacted Dabur’s international business, which accounts for a quarter of its consolidated revenues.
Dabur’s sustained efforts to increase spending on advertising and promotions have led to higher marketing expenses as a percentage of revenue. While these expenses may not reflect at the Ebitda level, investors are keen to see if such investments translate into volume growth, especially in the face of intensifying competition. The success of new product launches by Dabur is also expected to play a significant role in boosting investor sentiment.
RTM Watch’s Take
Dabur’s fortunes are closely tied to the recovery of rural markets, which account for a significant portion of its revenue. While the company has witnessed a pick-up in rural demand, it is crucial for this recovery to be sustained to ensure Dabur’s long-term success. The sequential improvement in demand and the positive outlook for volume growth in key segments are encouraging signs. However, Dabur needs to effectively leverage its marketing investments and capitalise on new product launches to drive volume growth and stay ahead in a competitive market.
