Dabur Q2 net up 8.4 pct, to focus on volume growth
Personal care and food products maker Dabur India plans to trade off margins for volume growth and market share as rising costs dented its profit growth in the second quarter.business Updated: Oct 31, 2011 19:12 IST
Personal care and food products maker Dabur India plans to trade off margins for volume growth and market share as rising costs dented its profit growth in the second quarter.
"There is no point in damaging the long-term potential of a brand by disproportionate pricing. You have to absorb the pain in the short term for a long-term gain," chief financial officer S Raghunathan told Reuters by telephone.
Consumer goods makers are facing a difficult choice between raising prices and retaining market share as persistently high inflation compresses their margins and a price increase hurts volume growth.
The wholesale price index, the most widely watched inflation gauge in India, was up 9.72% in September, and remained above 9 % for the 10th straight month.
India's central bank has raised interest rates 13 times since March 2010 to fight inflation, despite a slowing growth in Asia's third-largest economy. In July-Sept, Dabur raised product prices 2.5% on average, mainly in juice, oil and room freshner categories, and plans to increase prices in skincare in the current quarter.
The quantum of price increases have, however, been lower compared with input cost escalation, contracting Dabur's margins by 200 bps to 20% in the September quarter.
The margins would drop marginally in the Dec-quarter from about 20% a year ago, Raghunathan said.
Dabur expects price increases and inflation to stabilise and a higher spending on advertising to boost volumes in the third quarter, Raghunathan said. Earlier, Dabur said its quarterly profit rose 8.4% to 1.74 billion rupees, boosted by volume growth, price increases and cost efficiency measures. Sales rose 30% to 12.62 billion rupees.
A Reuters poll of brokerages had estimated a net profit of 1.68 billion rupees.
"The operating environment was extremely challenging and it impacted our margins during the period," Chief Executive Officer Sunil Duggal said in a statement.
During the quarter, Dabur's hair oil and food categories grew about 27% each.
Its international business that contributes about a third to topline gained 23% though business shrank in some middle-east countries because of political unrest.
On Monday, shares in Dabur, valued at about $3.6 billion, ended 0.75% up in a Mumbai market that fell half per cent.