Dabur matched our expectations by recording healthy 20.6% yoy growth in consolidated revenues at Rs15.2bn during Q2 FY13, driven by volume growth (10.5%), price hikes and translation gains.
Domestic business revenues (contributing ~67% to consolidated sales) increased by 15.3% yoy to Rs10.4bn fuelled by strong growth across key categories. Domestic volume growth which had recovered smartly to 11.6% in Q1 FY13 declined to 9% mainly due to slower growth in rural markets.
Hair care revenues grew by 13.2% yoy in Q2 FY13 aided by a recovery in shampoos which grew 40.2% yoy. Hair oils growth was muted at 9.1%, impacted by a lower rate of growth in Dabur Vatika. The management expects Dabur Vatika to witness a muted sales growth in FY13 as regional competitors will take price cuts due to the declining copra prices over the last few months. Perfumed hair oils (largely Dabur Amla) performed well, with brands growing by 16% yoy.
Oral care reported a muted 6.9% yoy growth impacted by Babool losing volumes as management focused on profitability. The toothpaste segment recorded 10.2% yoy growth with premium offerings Red Toothpaste and Meswak performing well.
Home care segment growth recovered sharply to 23% yoy driven by strong performance of Odomos and Sanifresh brands. Digestives segment’ revenue growth was back in double digits at 11.9% during the quarter driven by Hajmola and Pudin Hara.
Skin care segment registered strong 24.8% yoy growth driven by double-digit growth in Gulabari and Fem (led by strong growth in rural markets). Dabur is still not ready to take its Uveda brand national and will continue to test market it further. Health supplements segment recorded 15.7% yoy growth driven by strong double-digit growth in Dabur Honey, Chyawanprash and Glucose.
Foods segment’ growth has slowed down to 18.1% yoy compared to over 25% witnessed over the last several quarters mainly due to general slowdown in discretionary food segments.
Revenue growth in the international business including acquisitions remained strong at 24.8% yoy at ~Rs5bn led by strong performance in GCC (21%), Egypt (16%) and Nigeria (20%) businesses. The international business revenue growth could have been even better but for the poor performance of Namaste business (revenues declined due to distribution restructuring in Africa and changeover in branding in US).
Operating margins for the quarter contracted by 180bps to 17.4% due to sharp 180bps/100bps increase in advertising and overhead cost. An 110bps drop in raw material cost restricted further margin erosion. Adjusted net profit increased by 16.4% yoy to Rs2bn (in line with our expectations) led by higher other income and lower interest outgo.
|As a % of net sales||Q2 FY13||Q2 FY12||bps yoy||Q1 FY13||bps qoq|
Dabur has a unique mix of seven diverse growth engines in the FMCG space, which have a potential of delivering strong revenue growth. While we remain positive on the company’s growth prospects, Dabur faces risk from increasing competition in some of its categories like hair oils, skin care, shampoos and slower growth in its international business profits. We expect Dabur to witness revenue and earnings CAGR of 16.6% and 19% respectively over FY12-14. At the current market price of Rs125, the stock is trading at 24x FY14E EPS of Rs5.2. Maintain Market Performer rating on the stock with a revised 9-mth price target of Rs131 (earlier Rs125).
|(Rs m)||Q2 FY13||Q2 FY12||% yoy||Q1 FY13||% qoq|
|Purchase of FG||(1,237)||(1,155)||7.1||(1,456)||(15.0)|
|OPM (%)||17.4||19.2||(180) bps||14.1||327 bps|
|Effective tax rate (%)||18.6||19.7||-||19.6||-|
|Adj. PAT margin (%)||13.3||13.8||(49) bps||10.6||273 bps|
|Extra ordinary items||1||-||-||(49)||-|
|Ann. EPS (Rs)||4.6||4.0||
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