Dabur India (Q3 FY13)

India Infoline News Service | Mumbai |

Domestic business revenues (contributing ~71% to consolidated sales) increased by 14.3% yoy to Rs11.9bn fuelled by healthy growth across key categories (except Digestives, down 5.4% yoy due to base effect).

CMP Rs130, Target price Rs142, Upside 9.0% 
  • Dabur registered modest 12.3% yoy revenue growth during Q3 FY13 at Rs16.4bn – below our expectations of Rs17.4bn mainly due to slowdown US (Namaste) business. The Namaste business was under pressure mainly due to distribution restructuring in Africa and changeover in branding in US.
  • Domestic business revenues (contributing ~71% to consolidated sales) increased by 14.3% yoy  to Rs11.9bn fuelled by healthy growth across key categories (except Digestives, down 5.4% yoy due to base effect). The growth could have been even better but for lower CSD volumes in key healthcare categories. Dabur registered satisfactory domestic volume growth at 9.5% marginally improving from 9% in Q2 FY13 (11.6% in Q1 FY13) led by Real portfolio and rural expansion. The management expects to maintain the current trajectory of volume growth in the coming quarters.
  1. Hair care revenues grew by 13.9% yoy in Q3 FY13 aided by a recovery in shampoos which grew 29.6% yoy (Re1 sachet price point performed well). Hair oils registered 11.8% yoy growth driven by 14.9% yoy growth in perfumed hair oils. Coconut oils portfolio sales remained flat during the quarter. The management expects growth in the coconut hair oil portfolio to improve only once the differential pricing between its brand Dabur Vatika and other base coconut oils normalize.
  2. Oral care reported strong 13.6% yoy growth driven by the premium toothpaste portfolio (Dabur Red Toothpaste and Meswak) which grew by 25%+ yoy and 14.6% yoy growth in toothpowder sales (largely price led with muted volume growth). The toothpaste segment growth (13.3% yoy) could have been even better but for the weak performance of mass segment brand Babool post the price hike undertaken in the portfolio.
  3. Home care segment witnessed sharp 30.5% yoy increase in revenues driven by strong performance of Odomos (favorable season impact) and Sanifresh brands. We expect growth in this segment to normalize at ~20% levels over the next few quarters. Digestives segment revenues witnessed a decline of 5.4% yoy due to a high base effect and impact on volumes due to steep price hike in Hajmola brand.
  4. Skin care segment registered 15.7% yoy growth driven by double-digit growth in Gulabari and Fem (20% yoy) on account of strong growth in rural markets. The quarter saw launches and re-launches in the Fem and Gulabari portfolio. Health supplements segment growth moderated to 12% yoy due to lower growth in Chyawanprash, which was impacted by the CSD sales decline.
  5. Foods segment registered 22% yoy growth driven by Real portfolio which grew 29% yoy. However, the management expects a slower rate of growth in discretionary consumption in future due to which these growth rates are likely to slow down in the coming quarters. 
  • International business registered mere 9% yoy growth, with constant currency growth at 4%. The growth was primarily led by 22.4% yoy growth in the organic business and 24% yoy in Hobby. EBITDA margins witnessed a sharp 580bps expansion (on a low base) at 16.7% led by 500bps expansion in gross margins. Namaste business was under pressure and registered a decline in revenues due to distribution restructuring in Africa and changeover in branding in US. The management expects an improvement in growth in Namaste with its restructuring now complete.

  • Operating margins for the quarter expanded by 90bps to 16.8% aided by sharp 220bps decline in raw material cost. A ~80bps/50bps increase in adspend/staff cost restricted further margin expansion. Adjusted net profit increased by 22.2% yoy to Rs2.1bn (in line with our expectations) led by higher other income and lower interest outgo.
Cost analysis
As a % of net sales Q3 FY13 Q3 FY12 bps yoy Q2 FY13 bps qoq
Material cost 48.6 50.8 (219) 49.3 (64)
Personnel cost 7.5 7.0 48 7.9 (42)
Advertising cost 14.4 13.6 76 11.8 253
Other overheads 12.7 12.7 1 13.3 (62)
Total costs 83.2 84.2 (93) 82.4 85
Source: India Infoline Research

  • 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 17.9% and 17.4% respectively over FY12-14. At the current market price of Rs130, the stock is trading at 25.5x FY14E EPS of Rs5.1. Maintain Market Performer rating on the stock with a revised 9-mth price target of Rs142 (earlier Rs131).
Results table
(Rs m) Q3 FY13 Q3 FY12 % yoy Q2 FY13 % qoq
Net sales 16,360 14,573 12.3 15,275 7.1
Material cost (6,180) (5,448) 13.4 (6,287) (1.7)
Purchase of FG (1,773) (1,956) (9.3) (1,237) 43.3
Personnel cost (1,230) (1,025) 19.9 (1,212) 1.5
Advertising cost (2,351) (1,982) 18.6 (1,808) 30.0
Other overheads (2,081) (1,852) 12.4 (2,037) 2.1
Operating profit 2,745 2,309 18.9 2,693 1.9
OPM (%) 16.8 15.8 93 bps 17.6 (85) bps
Depreciation (305) (239) 28.0 (270) 13.0
Interest (78) (183) (57.5) (149) (47.7)
Other income 220 167 31.8 226 (2.3)
PBT 2,582 2,055 25.7 2,500 3.3
Tax (478) (337) 41.7 (464) 2.9
Effective tax rate (%) 18.5 16.4 - 18.6 -
Minority interest 6 10 (38.0) (13) -
Adjusted PAT 2,111 1,728 22.2 2,023 4.4
Adj. PAT margin (%) 12.9 11.9 105 bps 13.2 (34) bps
Extra ordinary items - - 0 1 0
Reported PAT 2,111 1,728 22.2 2,024 4.3
BSE 341.10 [4.25] ([1.23]%)
NSE 342.25 [1.95] ([0.57]%)

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