After disappointing the street with its Q4FY24 quarterly update, there was some relief for Dabur investors as March Quarter 2024 results came out. As indicated earlier in the quarterly update, revenue grew in mid-single digits and international business registered double-digit growth in constant currency (cc) terms. Dabur India’s product verticals, home & personal care (HPC), healthcare and food & beverages revenue contribution to total revenue mix stood at 47.6%, 30% and 22.4% respectively in Q4FY24.
Dabur reported revenues of Rs 2,815 crore in March Quarter 2024. Revenue growth at 5% YoY was supported by oral care, digestives, shampoo, home care, digestives and food sub-categories in March Quarter 2024. Net Profit rose 16% YoY to Rs 350 crore in Q4FY24 compared to Rs 300 crore in the same period previous year.
The home grown ayurvedic major reported volume growth of 4.2% in Q4FY24. International business grew 12% cc to Rs 718 crore in March Quarter 2024 contributing 26% to overall revenue basket. But this was indicated by the management in the quarterly update on April 4, 2024. The stock price had fallen 5% after the quarterly update was released as investors were disappointed with lower revenue growth in Q4FY24. So why is the street abuzz with Dabur after the Q4FY24 results.
Rural India To Drive Dabur India Topline
Dabur’ stock price is up nearly 10% since early May 2, 2024 after quarterly results were released. Though strong operating margin of 16.6% with expansion of 128 basis points (bps) YoY and double-digit net profit growth of 16%, highest over the past 10-12 quarters, was welcomed by the street, it was optimistic management commentary on rural growth that enthused investors. Speaking on rural growth, Mohit Malhotra, Chief Executive Officer at Dabur said, “we have seen rural growth from minus 5%, gradually and slowly has now become plus 6% almost now over 120-130 basis points ahead of urban.” The company is witnessing rural growth after three years post Covid. Investors are enthused as 50% of Dabur’s business comes from rural India. “We as a brand are also pretty rural-centric and ayurvedic products do well in rural India as compared to urban India”, said Malhotra. Dabur has created bundles of products available at accessible price points. shampoos, soaps, hair oils, toothpaste and beverages all are available at Rs 5, Rs 10, Rs 20 and Rs 60 to drive rural consumption. The company is following two pivots of growth, penetration and premiumization. While urban growth through modern trade and e-commerce is leveraged through premiumization, rural growth is penetration led. In other words, distribution expansion is a key growth lever for rural India. Speaking on rural growth, Malhotra said, “Village coverage went up by 20% from 1 lakh to 1.20 lakh. But the headroom for increasing the number of villages is huge. We’ve got about 6 lakh villages.”
Growth will be Volume Led, No immediate Price Increases
But when growth returns will it be price led or volume led for Dabur India. While growth in FY24 was mainly price led as the company took a number of price increases, FY25 will follow a volume led growth strategy. To allow rural growth to flourish and drive its topline and combat aggressive unorganized competition, Dabur India plans to focus on volume rather than price growth. Thus, the company is not looking for immediate price increases at all. According to the management, price increases will be there but limited to a weighted average of 3% in FY25, rest of the growth will be volume led. And price increases will be different for different verticals, said Malhotra, “You’re looking at our juice portfolio, which is very price-sensitive, only a 1% price increase there. In healthcare, which is more resilient, we’re looking at a 4% price increase. In home & personal care, we’re looking at about a 2% price increase.” Dabur’s volume growth was 4.2% for Q4FY24 and it was higher than close peers, Hindustan Unilever and Marico. Dabur India aims to grow at a high single to a low double-digit volume growth rate.
New Categories Doing Well, Chyawanprash Remains A Laggard
New product categories such as baby care, health juices, herbal teas, ghee, Odonil gel pocket and Odomos LVP have started contributing well for Dabur India. On the whole, the new category contribution is 3.5% of revenue mix. But it varies across all three verticals, new food business contributes 4.6%, HPC is 2% and 4% from healthcare. With strong performance in FY24, the management expects the growth momentum for new categories to continue.
While new product categories are being nurtured for future growth, Dabur is facing headwinds in its health supplements category which includes Chyawanprash and Honey. Chyawanprash penetration levels were as low as 2% before Covid, but increased more than 400 percentage points post Covid in India. While Chyawanprash demand has declined in the present Covid-free scenario and likewise penetration levels declined, competition has increased drastically. Dabur Chyawanprash which had market share of about 50% pre-Covid is presently facing higher competitive intensity as there are presently more than 15 Chyawanprash brands in India. Clarifying on the power brand, Chyawanprash rejuvenation exercise, Malhotra said, “We have Chyawanprash in capsule form. We are introducing Chyawanprash in gummy form, in powder form, trying to improve or modernize our format so that we can extend the usage and increase the relevance of the category and thereby increase the penetration levels which have definitely kind of gone down.” Dabur is also planning to promote Chyawanprash as an all season product and not just restricted to winters. And also promote the power brand through doctor channels both for ayurvedic and allopathic use for immunity building.
