Dabur India (Q1 FY14)

India Infoline News Service | Mumbai |

Dabur was able to maintain its operating margins at 14.6% aided by 100bps decline in raw material cost. A ~90bps/30bps increase in overhead/staff cost restricted further margin expansion

Dabur India (Q1 FY14) – BUY
CMP Rs171, Target Rs188, Upside 10.1%

  • Dabur registered healthy 12.9% yoy revenue growth during Q1 FY14 at Rs16.5bn – in line with our expectations. Domestic business revenues (contributing ~68% to consolidated sales) increased by 13.2% yoy to ~Rs11.2bn fuelled by healthy growth across key categories. Dabur registered strong domestic volume growth of 9% yoy (on a high base of 12% yoy). International business registered 17.4% yoy growth at ~Rs5.3bn (volume growth of 15% yoy, price decline of 0.7% and a currency gain of 3%). The management expects to maintain the current trajectory of volume growth in the coming quarters.
  • The hair care segment registered 11.8% yoy growth led by robust 22.8% yoy growth in shampoos. Hair oils registered 7% yoy growth driven by 15%+ yoy growth in perfumed hair oils (Dabur Amla – hair oil 14%). Coconut oils portfolio sales remained under pressure due to increased price differential with loose oil. The company has taken price corrections in its coconut hair oil portfolio to restrict decline in sales of Dabur Vatika and Anmol. We expect impact of this will be visible in the coming quarters.


  • Oral care segment reported 8.6% yoy growth driven by 14% yoy growth in the toothpaste business (Dabur Red Toothpaste and Meswak). The growth could have been even better but for decline in toothpowder sales. The management targets a blended growth (toothpaste + toothpowder) of ~10% for its oral care portfolio in FY14.
  • Home care segment witnessed 25.8% yoy increase in revenues driven by strong performance of Odomos, Odonil (50% of home care) and Sanifresh brands. Digestives segment revenues grew by 15.1% yoy driven by strong growth across brands. Both Hajmola tablets and candy formats performed well.
  • Skin care segment registered 12.7% yoy growth driven strong growth in Gulabari and Fem portfolio. The company launched Oxylife Aloe Vera Gel bleach during the quarter. Impacted by pressure on Glucose sales due to early onset of monsoons, Health supplements segment recorded mere 7.5% yoy revenue growth (Chyawanprash sales are typically low in Q1 due to seasonality).
  • Dabur’s retail business, under NewU registered 27.1% yoy growth in revenues at Rs169mn and has marked a turnaround with a reduction in losses at Rs9mn Vs Rs24mn in Q1 FY13.
  • Foods segment registered 18.7% yoy growth driven by Real portfolio. Food margins were impacted during the quarter due to higher cost of concentrates (on account of rupee depreciation). Dabur has recently taken price hikes to partially mitigate the impact. Dabur has recently commissioned a fruit juice plant in Sri Lanka. The management expects supply chain and income tax benefits to flow through this plant and believes there will also be a export opportunity for Middle East market.
  • International business registered 17.4% yoy growth primarily led by strong growth in GCC markets and healthy performance of Namaste and Hobi business. The revenue growth was primarily volume driven with volume growth at 15%. Namaste registered 13% yoy growth in constant currency terms (16% in rupee terms) and management expects ~500-600bps expansion in OPM from the lows it had reached on the back of operating leverage. The management expects the international business to witness ~15% yoy growth in FY14.
  • Dabur was able to maintain its operating margins at 14.6% aided by 100bps decline in raw material cost. A ~90bps/30bps increase in overhead/staff cost restricted further margin expansion. The management expects adspends to sales ratio for FY14 to be ~13-14%. Adjusted net profit increased by 21.2% yoy to Rs1.9bn (in line with our expectations) led by higher other income and lower interest cost.
Cost analysis
As a % of net sales Q1 FY14 Q1 FY13 bps yoy Q4 FY13 bps qoq
Material cost 48.9 50.0 (115) 48.3 58
Personnel cost 7.9 7.7 27 7.9 5
Advertising cost 15.4 15.7 (28) 12.5 286
Other overheads 13.5 12.6 87 14.2 (75)
Total costs 85.7 86.0 (28) 83.0 274
Source: India Infoline Research

  • Dabur has a unique mix of eight diverse growth engines in the FMCG space, which have a potential of delivering strong revenue growth. The company continues to record strong volume led domestic growth. International business is expected to record 15% yoy growth in FY14 led by Hobi and Namaste business. Dabur is also likely to benefit from stable input prices and lower adspends in FY14. We expect Dabur to witness revenue and earnings CAGR of 15% and 18.3% respectively over FY13-15. At the current market price of Rs171, the stock is trading at 27.7x FY15E EPS of Rs6.2. Maintain Buy with a revised 9-mth price target of Rs188.
Results table
(Rs m) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Net sales 16,511 14,620 12.9 15,311 7.8
Other operating income 54 93 (41.7) 126 (56.8)
Total income 16,565 14,713 12.6 15,437 7.3
Material cost (6,171) (5,861) 5.3 (5,873) 5.1
Purchase of FG (1,902) (1,456) 30.7 (1,526) 24.7
Personnel cost (1,313) (1,122) 17.0 (1,209) 8.6
Advertising cost (2,542) (2,292) 10.9 (1,919) 32.5
Other overheads (2,228) (1,845) 20.8 (2,181) 2.2
Operating profit 2,409 2,137 12.7 2,729 (11.7)
OPM (%) 14.6 14.6 (3) bps 17.8 (323) bps
Depreciation (287) (267) 7.5 (282) 2.0
Interest (133) (213) (37.4) (150) (11.2)
Other income 366 263 38.9 230 59.2
PBT 2,355 1,921 22.6 2,527 (6.8)
Tax (484) (378) 28.2 (507) (4.5)
Effective tax rate (%) 20.6 19.7 - 20.1 -
Minority interest (10) (2) 329.2 (15) -
Adjusted PAT 1,860 1,541 20.7 2,006 (7.3)
Adj. PAT margin (%) 11.3 10.5 73 bps 13.1 (183) bps
Extra ordinary items - (47) - - -
Reported PAT 1,860 1,494 24.5 2,006 (7.3)
Ann. EPS (Rs) 4.3 3.5 20.7 4.6 (7.3)
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Re
BSE 341.10 [4.25] ([1.23]%)
NSE 342.25 [1.95] ([0.57]%)

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