Dabur India (Q2 FY14)

India Infoline News Service | Mumbai |

Dabur has a unique mix of eight diverse growth engines in the FMCG space, which have a potential of delivering strong revenue growth.

CMP Rs177, Target Rs196, Upside 11.1%
  • Dabur registered healthy 14.9% yoy revenue growth during Q2 FY14 at Rs17.5bn driven by 10.9% yoy volume growth – marginally above our expectations of Rs17.3bn. Domestic FMCG business revenues (contributing ~65% to consolidated sales) increased by 14.4% yoy to ~Rs11.4bn fuelled by healthy growth across key categories. International business contributing 35% to consolidated sales registered 25.8% yoy growth at ~Rs6.1bn. The management expects to maintain the current trajectory of volume growth in the coming quarters.

-  The hair care segment registered mere 4% yoy growth (on a high base) during Q2 FY14 due to slow down in hair oil category and price cuts taken by the company in coconut hair oil portfolio. Shampoos and hair oils registered 16.5% yoy and 6.5% yoy growth respectively. Coconut hair oil segment however de-grew due to price cut taken to pass on the copra cost benefit. Dabur Almond oil is witnessing healthy performance and is not priced at par with Bajaj Almond hair oil (market leader). The company plans to launch two more light hair oil products in Q3 FY14 and Q4 FY14/Q1 FY15.


-  Oral care segment reported 18.7% yoy growth driven by 16.5% yoy growth in the toothpaste business (Dabur Red Toothpaste and Meswak). The growth could have been even better but for muted growth in Babool sales. Toothpowder segment witnessed 25%+ yoy sales growth led by promotional activity taken by the company during the quarter. The management targets a blended growth (toothpaste + toothpowder) of ~10% for its oral care portfolio in FY14.


-  Home care segment witnessed 25.3% yoy increase in revenues driven re-launch of Odonil (50% of home care) and strong performance of Sanifresh brand. Digestives segment revenues grew by 11.9% yoy driven by strong growth across brands – Hajmola and Pudin Hara.


-  Skin care segment registered 17.4% yoy growth driven strong growth in Fem portfolio, particularly Fem bleaches and Gulabari. The company has entered into male grooming segment with the launch of “Oxylife Men Crème bleach”. The company plans to enter into new segments within male skincare market which have not been explored yet. Health supplements segment recorded healthy 16.8% yoy revenue growth led by strong growth in Dabur Honey.


-  Foods segment registered 22% yoy growth driven by Real portfolio. However, profitability was impacted because of countervailing duty been imposed on concentrates. The company has ventured into Milkshake category under the brand name “Real”.

  • International business registered 25.8% yoy growth (14% in constant currency terms) at ~Rs6.1bn primarily led by healthy growth in the MENA region and Bangladesh. In constant currency terms, Hobi and Namaste reported double digit growth.


  • Operating margins expanded by 180bps to 18.5% aided by 330bps decline in raw material cost. A ~110bps/60bps increase in adspend/staff cost restricted further margin expansion. The management expects adspends to sales ratio for FY14 to be ~13-14%.

Cost analysis
As a % of net sales
Q2 FY14
Q2 FY13
bps yoy
Q1 FY14
bps qoq
Material cost
46.2
49.4
(326)
48.9
(274)
Personnel cost
9.1
8.4
63
7.9
113
Advertising cost
13.0
11.9
113
15.4
(239)
Other overheads
13.2
13.5
(26)
13.5
(26)
Total costs
81.5
83.2
(176)
85.7
(426)
Source: India Infoline Research
  • Other income for the quarter declined by 7.1% yoy to Rs226mn as the company booked one-time loss of Rs90mn because of erosion in NAV of mutual funds. Interest cost increased sharply by 34.2% yoy due to forex loss and capitalisation of the Sri Lankan facility. Adjusted net profit increased by 23.4% yoy to Rs2.5bn (in line with our expectations) led by higher revenue growth and improved operating efficiency.

  • 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. We expect Dabur to witness revenue and earnings CAGR of 15% and ~20% respectively over FY13-15. At the current market price of Rs177, the stock is trading at 27.9x FY15E EPS of Rs6.3. Maintain Buy with a revised 9-mth price target of Rs196 (earlier Rs188).

Results table
(Rs m)
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Net sales
17,488
15,226
14.9
16,511
5.9
Material cost
(6,188)
(6,287)
(1.6)
(6,171)
0.3
Purchase of FG
(1,884)
(1,237)
52.2
(1,902)
(1.0)
Personnel cost
(1,588)
(1,286)
23.5
(1,313)
21.0
Advertising cost
(2,275)
(1,808)
25.8
(2,542)
(10.5)
Other overheads
(2,315)
(2,055)
12.7
(2,228)
3.9
Operating profit
3,238
2,552
26.9
2,355
37.5
BSE 341.10 [4.25] ([1.23]%)
NSE 342.25 [1.95] ([0.57]%)

***Note: This is a NSE Chart

 

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