Q4 results: Dabur India hopes to sail in Patanjali’s wake

If Dabur can deliver better sales growth and maintain margins, it may be able to meet the high expectations that investors have set

Squeeze the honey out of Dabur. Now Baba Ramdev did not say this, when he recently said he will take the gate out of Colgate and coined similar fates for other foreign-owned brands. But he may well have. Dabur India Ltd said its health supplements business grew in single digits in the March quarter, as its honey sales were affected by Patanjali honey’s aggressive launch. Patanjali’s 500g honey bottle has a list price of Rs.135 versus Dabur’s Rs.199 (exclusive of discount) on bigbasket.com.

Dabur’s management says it will not compete on price (butbigbasket.com is offering the 500g bottle at a discounted price of Rs.169.15); instead it has launched a “squeezy” honey bottle and will launch value-added variants next month. The initial impact has been harsh but surprisingly, Dabur has only words of praise for its competitor. It sees Patanjali as prising open a huge opportunity for products with a herbal/Ayurvedic tilt.

Chief executive Sunil Duggal said Patanjali may actually help in products such as chyawanprash, which they have struggled to grow in recent years. Warm weather—it sells most in winter—is one reason, but he said the product also lacked the kind of “evangelism” or “disruptive influence” that Ramdev has brought.

Duggal’s logic is Patanjali may initially eat into incumbents’ markets but Ramdev’s efforts can grow the market too. In oral care, for instance, Dabur’s growth has benefited from more demand for Ayurvedic/herbal toothpastes. Though Dabur does not sell ghee, Duggal remarked that Ramdev appears to have added new consumers for this product. As disruptive change goes, there’s no knowing what will happen but Dabur’s view is one possibility, an optimistic one at that.

Dabur’s March quarter results show better sales growth, up by 8.5% in value terms and by 7% in volume. Value sales growth is better than the December quarter’s fall of 2.5%. The end of the blockade on the India-Nepal border has seen its food business come back strongly. That had affected growth in the preceding quarter.

Apart from food and oral care, the home care business did well too. Dabur’s international business saw organic growth (excluding the impact of acquisitions/divestitures) of 19.3% compared with 10.7% growth in the preceding quarter. The recovery in sales growth, some support from price increases, slower increase in costs, all contribute to an increase in its Ebitda (earnings before interest, taxes, depreciation and amortization) margin, both from a year ago and the preceding quarter. A higher tax rate lowered net profit growth to 16.6% compared with a pre-tax profit growth of 20%.

Dabur’s management expects the second half of FY17 to see better sales growth, contingent on a good monsoon. It is still seeing weak rural growth and no significant support from the urban general trade channel (kirana shops). Modern trade is selling well, however. Although some input costs are moving up, the company is not expecting to see significant price increases. It’s a cautious outlook, justifiable considering that past optimism in the sector has not always played out, and what with a hungry competitor on the prowl.

Dabur’s share fell by 1.05% on Thursday. It trades at 38 times the price-to-earnings ratio for the year ended 31 March. FY16 was a tough year but the current fiscal year looks to be a better one, although not if the company’s cautious outlook proves right. If Dabur can deliver better sales growth and maintain margins, it may be able to meet the high expectations that investors have set.