The momentum in Dabur's top line continued in the March 2009 quarter
with the company posting a 20 per cent rise in revenues.

That has helped it end 2008-09 with a sales growth of 20 per cent,
with much of the demand originating from rural markets. The best part
about the March quarter numbers was that sales were driven by a strong
growth in volumes of 13 per cent — hair care did particularly well to
sell 23 per cent more volumes.

Surprisingly, the gross margins were somewhat weak though operating
profit margins were up 160 basis points at 17.7 per cent, thanks to
savings on overheads, employee costs and smaller losses from the
retail venture. The bottom line was boosted by a lower tax rate.

The company has played to its strengths — a strong portfolio of herbal
brands and should be able to sustain the momentum. In the current
year, lower raw material prices will support operating margins though
the management will also need to up ad spends to push both existing
and new brands.

As such, margins may remain at around 17.5 per cent. Losses from the
retail venture should also come down by about Rs 10-12 crore which
again would help the bottom line.

The stock has seen a sharp run up since the start of the year and at
Rs 109, trades at about 20 times estimated 2009-10 earnings, which is
not cheap considering that earnings are expected to grow between 15-16
per cent in the next couple of years.