Sales of domestic FMCG business fell 6.8% y-o-y, led by volume decline of 5.0%. With a 2.5% volume decline in the base quarter, we were expecting positive volumes for Q3FY17 despite demonetisation. Sales of consumer care segment declined by 11.2% and those of international business by 5.2% y-o-y. Management did point out that domestic sales declined 6.8% y-o-y in primary terms, but grew 0.7% y-o-y in secondary terms.
Dabur witnessed double-digit sales growth in October. November was bad. While December witnessed recovery, sales were still down y-o-y. Management expects domestic margins to be stable going forward.
However, currency depreciation could affect international business margins. While new launches in the science-based Ayurveda space, potential recovery in rural consumption and recent investments in distribution expansion should aid growth over medium term, we reduce our EPS for FY18E/FY19E by around 2% due to delay in earnings growth. The stock is fairly valued at 33.3x FY18E EPS.
Management expects a relatively muted Q4FY17. Moreover, while demonetisation effect may not be there in Q1FY18, pipeline for that quarter may get affected by possible GST rollout in July.
