A tight rein on advertising expenses has helped Dabur India deliver better-than-expected profit growth in the quarter ended March 31 2011. The company's standalone results (which are more representative because they capture Indian operations alone and exclude recent acquisitions), show a 14 per cent expansion in net sales, while operating profits grew by a higher 24 per cent for the March 2011 quarter over a year ago. An increase in tax incidence curbed net profit growth to 19 per cent- still much better than the expected single-digit growth.

Margins expand

With input costs for a range of materials from oils to petrochemicals shooting up, FMCG makers have been taking calibrated price increases on a range of products — detergents, soaps, hair oils and foods — over the past quarter. While this will ensure that most FMCG makers report strong sales growth for this quarter, the key uncertainty is about whether profits will keep up with those sales. The expansion in Dabur India's domestic operating profit margins from 19.2 per cent to 21.2 per cent between the March 2010 quarter and the latest one shows that the company has managed this challenge reasonably well.

Adspends held

The breakup of numbers shows that the company did suffer pressure from escalating raw material expenses this quarter, with its input costs shooting up by nearly 17 per cent year-on-year, relative to a 14 per cent growth in sales. However, what has salvaged Dabur's margins is its savings on advertising and promotional costs. Even as most other FMCG players have allocated a rising proportion of their sales to adspends in recent quarters, Dabur has seen a decline of 19 per cent in its advertising and promotional spend for the latest March 2011 quarter compared to a year ago. That has, in fact, ensured that Dabur's full-year advertising spends at Rs 390 crore were the same as in 2009-10. Whether this is a sign of the company economising on adspends, a decision to back-end such spending or simply, lower competition in the categories in which the company operates, however, remains to be seen.

The consolidated picture on results shows Dabur delivering a 30.7 per cent expansion in its net sales with net profit growth curtailed at 8.5 per cent. The sales growth is partly because of newly added global businesses (buyouts of the Namaste group and Hobi Kozmetik of Turkey) which have been absorbed into the company's international operations this quarter. It is early days yet to comment on the progress of these businesses. However, the fact that Dabur's operating profit margins on a consolidated basis were at 19.2 per cent, well below those on standalone operations point to the lower profitability of the international operations as of now.

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