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Informist, Tuesday, Oct. 15, 2024

 

By Avishek Rakshit

 

KOLKATA – Dabur India Ltd.'s decision to correct its inventory in the general trade, and slowdown of consumption in rural markets could lead it to report a consolidated net profit of INR 4.2 billion during Jul-Sept, down 17.5% on year, according to the average of estimates from 13 brokerages. Its consolidated revenue is expected to decline to INR 30.6 billion, down 4.4%.

 

General trade refers to the traditional distribution channels for consumer goods companies such as smaller, independent retailers, such as kirana stores.

 

Sequentially, the company's consolidated net profit is expected to dip a little over 15% and revenue is expected to decline 8.5%. In the year-ago period, the company had reported a consolidated net profit of INR 5.2 billion on revenue of more than INR 32 billion, while in Apr-Jun, its consolidated net profit was over INR 5 billion on revenue of INR 33.5 billion.

 

The company will report its earnings for the quarter ended September on Oct. 30.

 

Among brokerages, Nuvama Wealth Management Ltd. has the highest estimate for Dabur's net profit at INR 5.1 billion and Antique Stock Broking Ltd has the lowest at INR 3.8 billion. Nuvama Wealth Management also has the highest estimate for revenue at INR 33.2 billion, while Sharekhan Ltd. gave the lowest estimate at INR 30.2 billion.

 

On Oct. 1, Dabur said in a filing with bourses that it expects a mid-single-digit decline in its consolidated revenue for Jul-Sept. Lower sales would also lead to its profitability taking a hit, and the operating margin is expected to decline in the range of mid to high teens due to deleverage and continued spends on advertising and promotions, it had said.

 

Dabur reasoned that it has been focussed too much on growing its sales channels in modern trade, which involves large grocery shops, grocery outlets in malls, e-commerce channels, and quick commerce. As a result of an uptick in these sales channels, its inventory in general trade has piled up. It led to substantial monetary pressure on its traditional sales channels, including distributors. As a result, the company is now focussed on clearing that inventory.

 

Following the company's update, Kotak Institutional Equities said that Dabur is expected to register about 10% on-year decline in its sales volume, and the value of products sold during Jul-Sept could dip 8%. Dabur largely stopped primary sales for the last 7-8 days of the quarter to enable broad-based category-wide distributor inventory correction, the brokerage said.

 

"Amongst the companies focussed on rural areas, Dabur has been the most aggressive when it comes to focussing on modern trade and is expected to maintain its stand down the line. But it left the general trade dry and its distributors took some hit on their returns on investment," a sector analyst who closely tracks Dabur told Informist. "As a result, I think that Dabur might have to suffer some inventory returns from the general trade, and in the worst-case scenario, it could also have to write off inventory lying with the general trade."

 

Despite the pessimistic outlook by the company, brokerage Motilal Oswal Financial Services Ltd. said that recovery in rural markets should support Dabur's portfolio, as it is heavily skewed towards rural areas. In the domestic business, the brokerage expects healthcare, oral care, and the food business to grow faster than others, and Dabur's focus on growing its distribution channels will further contribute to rural growth.

 

Even though Dabur in the update said it expects its consolidated revenue to decline and profitability to be under pressure, brokerage Nuvama Wealth Management said that Dabur's consolidated revenue will grow 3.5% on year, and earnings before interest, tax, depreciation, and amortisation, or EBITDA will grow 2%.

 

Dabur could report an EBITDA of INR 5.6 billion, according to the average of estimates from 11 brokerages. Nuvama Wealth Management estimated the highest EBITDA at INR 6.7 billion, and Antique Stock Broking estimated the lowest at INR 5.1 billion.

 

Brokerage Nirmal Bang Equities Pvt. Ltd. said that Dabur's EBITDA margin is likely to decline 230 basis points at 18.3%, and gross margins could decrease 50 bps. Nuvama Wealth Management estimated the EBITDA margin to decline 30 bps to 20.3%, and gross margins to go down 19 bps at 48.1%.

 

Following are the Jul-Sept earnings estimates of Dabur based on reports compiled by Informist from 13 brokerage houses:

 

Broker Name	Net Sales (in INR million)	Net Profit (in INR million)	EBITDA (in INR million)
Anand Rathi Share and Stock Brokers Ltd.	30,436.00	4,162.00
Antique Stock Broking Ltd.	30,432.00	3,836.00	5,123.00
Axis Securities Ltd.	30,520.00	4,080.00	5,420.00
Centrum Broking Ltd.	30,608.00	4,207.00	5,479.00
Elara Securities (India) Pvt. Ltd.	30,533.00	4,374.00	5,532.00
Emkay Global Financial Services Ltd.	30,331.00	4,346.00	5,460.00
Kotak Institutional Equities	30,424.00	4,262.00	5,459.00
Motilal Oswal Financial Services Ltd.	30,385.00	4,370.00	5,528.00
Nirmal Bang Equities Pvt. Ltd.	30,430.00	4,225.00	5,569.00
Nuvama Wealth Management Ltd.	33,164.00	5,097.00	6,742.00
Prabhudas Lilladher Pvt. Ltd.	30,436.00	4,273.00	5,631.00
Sharekhan Ltd.	30,160.00	3,840.00
YES Securities (India) Ltd.	30,392.00	4,175.00	5,553.00
Average	30,634.69	4,249.77	5,590.55

 

On Tuesday, shares of Dabur India ended 0.7% up at INR 571 on the National Stock Exchange.  End

 

Edited by Tanima Banerjee

 

 

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