by Suhani Adilabadkar

Dabur reported a double digit revenue decline for the June quarter FY21, with business operations jammed by lockdown restrictions and supply chain disruptions. The previous March quarter had been disappointing as well, but the stock price doesn't reflect it - Dabur stock jumped 3% after the June quarter results announcement and has continued to gain since the end of March.

Dabur is one of the oldest brands around, having been in business for 136 years, and is one of the largest ayurvedic and natural health care companies. With a portfolio of 400 products, the company operates in hair care, oral care, health care, skin care, home care and foods categories. Dabur has a presence in over 100 countries across the globe with its brands widely popular in the Middle East, SAARC countries, Africa, US, Europe and Russia. The company has its manufacturing facilities spread across 12 locations in India and 8 overseas. International revenue accounts for about 28% of the total turnover for Dabur. 

Quick Takes:

• Operating revenues declined 13% YoY impacted by domestic FMCG business declining 6.9% and international business falling 21.6% YoY.

• Operating profit fell 9% YoY while PAT witnessed de-growth of 6% YoY reported at Rs. 341 crore in Q1 FY21.

• Dabur Chyawanprash grew 700%, Dabur Honey jumped in double digits and sanitizer category garnered Rs. 90 crore revenues for June quarter FY21.

• The stock price jumped 3% as June quarter results came above street estimates and investors were enthused with company’s healthcare segment’s growth and record number of new products launches since Covid entered Indian territory.

• According to management, Dabur was happily cruising along, all ready to touch a double-digit PAT growth rate and 6% revenue growth by the end of FY20. But as Covid happened, disrupting the March quarter, the company had to settle down at around 2% revenue growth and stagnant PAT for FY2020.

• New products launches which used to be around 1-2% of overall revenue, now stands at 6% in June quarter FY21.

June Quarter FY21

Dabur reported operating revenues of Rs. 1,980 crore in June quarter FY21 compared to Rs. 2273 crore in the same period last year, declining 13% YoY impacted by domestic FMCG business declining 6.9% and international business falling 21.6% YoY. Operating profit was also on the same course declining 9% YoY at Rs. 417 crore in Q1 FY21 against Rs. 458 crore for the corresponding quarter of the previous year.

Operating margins improved 91 bps YoY due to stable raw material prices and lower advertisement spend during the quarter. Operating margin came out at 21% in June quarter FY21 compared to 20.13% same period previous year. PAT or Net Profit reported de-growth of 6% YoY from Rs. 363 crore in June quarter FY20 to Rs. 341 in Q1 FY21.

FMCG: a market with changing consumer priorities

As consumption patterns shift towards personal hygiene and preventive healthcare, FMCG companies are scrambling to hold on to a larger share of consumer mind space through a host of new products ranging from sanitizers to ready to eat packaged food to immunity boosters.

Dabur's domestic FMCG business operates through three business verticals, home & personal care (HPC), healthcare and foods business contributing 48%, 38% and 14% respectively in Q1 FY21. Starting with food business, Dabur operates this segment through Réal and Réal Activ brands and Hommade (culinary pastes and sauces).

The category witnessed a revenue decline of 34% YoY due to lower out of home consumption and consumers shifting to cheaper alternatives and milk based drinks. Next in line, bome & personal care (HPC) revenues fell 15% YoY as hair oils, shampoos and home care products such as odomos, odonil witnessed de-growth. Discretionary skin & salon products, Fem and Gulabari, reported negative growth while sanitizers garnered Rs. 90 crore revenues for the quarter. 

Oral care category with brands such as Dabur Red Paste and Dabur Meswak reported mild growth of 1.4% YoY in June quarter FY21. And lastly health care segment with its four sub-categories, health supplements, digestives, OTC and ethicals bound by common thread of ayurveda reported 29% YoY growth. Health supplements grew 53% YoY driven by 700% growth in Dabur Chyawanprash and double digit jump in Dabur Honey.

OTC revenues jumped 34% YoY driven by new products launches and products such as Honitus doubling its sales during the quarter. Ethicals constituting immunity boosters, women health care, baby care and rejuvenators grew 11% YoY while digestives category declined 11.5% impacted by restricted outdoor activity, minimal outside food consumption and closures of restaurants.  

Operating Amidst Covid  

According to management, Dabur was happily cruising along, all ready to touch a double-digit PAT growth rate and 6% revenue growth by the end of FY20. But as Covid happened, disrupting the March quarter, the company had to settle down at around 2% revenue growth and stagnant PAT for FY2020.

The management further cautioned that Q1 FY21 would be witnessing revenue and PAT impact of Rs. 400-450 crore and Rs. 60-80 crore respectively. Dabur entered the June quarter with closed factories till the second week of April, and though month of April was a complete washout, May and June saw significant sequential improvement with business returning to near-normal levels. The stock price jumped 3% as June quarter results came above street estimates and investors were enthused with company’s healthcare segment’s growth and record number of new products launches since Covid entered Indian territory. 

New Found Aggression 

The company launched its ‘power brand strategy’ last year, identifying 9 power brands, Dabur Chyawanprash, Dabur Honey, Dabur Lal Tail, Dabur Honitus, Dabur Pudin Hara, Dabur Red Paste, Dabur Amla Hair Oil, Vatika and Réal fruit juice which account for more than 70% of total sales. As per this strategy, Dabur sharply increased its advertising and media spends and undertook new packaging, new formats, communication, marketing mix to improve it’s connect with the millennials and Gen-Z.

The strategy paid off with power brands growing handsomely throughout FY20 and in June quarter FY21, while total revenue declined 13% YoY, power brand revenues fell just 1.2%. The company intends to continue this strategy by building flanker brands of its power brands as initiated in hair oil segment through Dabur Amla.

In addition to this focussed growth strategy, what has enthused investors is Dabur’s new found aggression. It is no longer the staid FMCG player with a legendary product portfolio. Instead of playing defensive and protecting its turf, Dabur appears ready to take the Covid impact on.

The company has launched 50 new products since the Coronavirus, and the business is compressing its new product time line from one and a half years down to two months. New product launches in the healthcare segment are Dabur Honey Tulsi, Honey Ashwagandha, Ashwagandha Tablets and capsules, Ayush Kwath, Honitus Adulsa Cough Syrup, Sanitize Antiseptic Liquid, Tulsi Drops, Haldi Drops, Trikatu Churna, Giloy Ras, the list can go on.

The company has utilized this disruptive period, leveraging on its ayurvedic roots to innovate on healthcare products, driving growth in this segment as discretionary categories of food and HPC segment struggle. In the HPC and food segment the company has launched new products such as Dabur Dant Rakshak, Sanitize Laundry Sanitizer, Dazzl Floor Cleaner, Odomos Mosquito Killer Racquet, Dazzl Surface Cleaner, Veggie Wash to name few HPC products and Dabur Amla Plus, 4 variants of Real milkshakes, Apple Mini juice, Dabur Hommade Chutney & Pickle Range, building a product basket for food business. 

New products launches which used to be around 1-2% of overall revenue, now stands at 6% in June quarter FY21. Speaking on its goals, Mr. Mohit Malhotra, CEO, Dabur said, “The pandemic has transformed Dabur into a stronger, more agile enterprise with the entire organization working together as a cohesive team to ensure profitable growth. We have significantly enhanced our risk-taking ability as an organization, moving from a fearful to a fearless attitude. COVID has acted as a catalyst for change”.