A large basket of brands and presence in the most attractive segments of the FMCG market — health, beauty and foods — may help Dabur India manage good growth despite high input costs and slowing offtake in the consumer space. The 15 per cent fall in the stock in the last two months presents a good buying opportunity. Disappointment over recent September quarter results have levelled the stock's valuations, making it the cheapest among peers today. At current market price of Rs 97, Dabur India trades at 21 times its estimated earnings for 2012-13, compared to the 23 times for Marico and 29 for Hindustan Unilever. The current price-earnings multiple (29) is reasonable relative to the historic valuation band of 25-43 times.

Dabur India closed the latest September quarter with a 8.4 per cent growth in consolidated net profits on a near 30 per cent growth in sales. Cross-border acquisitions of the Hobi group and Namaste group lifted growth rates, with organic growth rates at 13 per cent. Domestic growth for Dabur, at 11 per cent was seen as disappointing, even as its overseas business notched up a 22 per cent increase.

Concerns on this score however, may be overdone. A breakdown of numbers shows that growth in this quarter was led mainly by hair care (16 per cent), health supplements (7.8 per cent) and oral care (6 per cent), while segments such as home care, skin care and over-the-counter pharma flagged. The slowdown in skin and OTC segments is attributable to Dabur's decision to integrate its health supplements and skin care business into consumer care, this quarter. Given strong gains made by brands such as Gulabari and Honitus , the setback may be temporary. Sluggish rural offtake was also to blame, given the company's big rural footprint.

While inflation is a worry in this segment, rural consumption is likely to pick up over the medium term, as incomes benefit from recent increases in rural wages, minimum support prices for key crops and a bountiful monsoon. Dabur's brands straddle eight different FMCG categories (oral care, home care, health supplements, baby care, hair care, fruit juices and foods and OTC), with a third of revenues originating from outside India. This sheer diversity gives the company the flexibility to offset input cost increases or competitive pressures in one category, through pricing decisions or market share gains in another.

On the profit front, again, the company's performance has been sedate, but not particularly bad. The 8.4 per cent expansion in net profits was muted by interest costs and tax incidence. However, the underlying growth in operating profits was 16 per cent, as the company cut back adspend to make up for the jump in material costs. Dabur India's operating profit margin of 20 per cent, is still well above most FMCG rivals including Hindustan Unilever; that is a function of the company's high shares in the less competed FMCG segments. The company's return on net worth of 48 per cent, and negligible debt contracted at low costs, make the stock a classic defensive bet.

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