Dabur says DeMo, GST not concerns anymore, but FMCG hits bump overseas

The fast moving consumer goods (FMCG) industry in India continues to face macroeconomic headwinds in some parts of the world. Events like currency devaluation and geopolitical issues in certain international markets are having an impact on the overseas business of domestic FMCG firms.

Speaking to DNA Money, Lalit Malik, chief financial officer, Dabur India Ltd, said when we look at the overall international market, there have been pockets with two set of issues. “One is on account of currency exchange. Some markets like Egypt, Nigeria, Turkey, etc, have had very steep currency devaluation. Secondly, there are geopolitical issues in certain other markets like Saudi, Iraq and Bangladesh. So to that extent, every player having business operations in these markets outside India would have faced issues,” said Malik.

On the continuation of these issues and its resultant impact on international business for FMCG firms, Malik said, “There has been a roll-over of currency devaluation in markets like Egypt. So the major impact we saw in the past three quarters, has reduced to some extent.”

Despite these challenges, Dabur’s international business reported a 16.8% growth, in constant currency terms in the March 2018 quarter. International business contributes approximately 30% to the company’s consolidated revenues. Sales in Gulf Cooperation Council (GCC) markets grew 51%, led by Saudi Arabia, which reported an 82% growth during the said quarter. Business in Egypt reported a 38% growth while sales in Nepal grew around 19%.

As far as Indian market is concerned, major disruptions like demonetisation and initial hurdles with the implementation of goods and services tax (GST) are not a concern anymore. “The last five to six quarters saw major disruptions on account of DeMo and GST but all that is behind us now. Stability is more or less coming back and we should have steady growth coming in the next few quarters. Secondly, this is a pre-election year and benefits of fiscal incentives announced earlier will start going into the hands of people. So we are expecting this to also boost consumer sentiment to some extent,” said Malik.

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Strong domestic performance is helping Indian FMCG firms in tiding over these international hurdles. Dabur, with strong growth across its key business categories and geographies, has ended the fourth quarter with a consolidated revenue of Rs 2,032.91 crore, up 11.1%. Consolidated net profit surged 18.9% to Rs 396.20 crore.

Dabur’s domestic business reported an underlying volume growth of 7.7% during the quarter. Chief executive Sunil Duggal said that the company has efficiently managed the risks and challenges to deliver steady growth and reported a resilient margin performance. “We have delivered another strong performance in the quarter with our India operating margin touching a historical high of 27.2% on the back of improved operating efficiencies and judicious cost management. Despite growing competitive intensity, the India business posted a healthy volume growth and continues to outperform the market in key business categories.

“Going forward, we will continue to invest behind our brands to successfully tap the significant growth opportunities and deliver profitable volume-led growth,” he said in a results statement, adding that there are early signs of revival in consumer sentiment, especially in rural India.

Additionally, the company’s Board has proposed a special dividend of Rs 5 per share in addition to the final dividend of Rs 1.25 per share, aggregating to Rs 1,327.25 crore, including dividend tax.

By Ashish K Tiwari, DNA Money