Dabur India (Q3 FY14)

India Infoline News Service | Mumbai |

Operating margins declined by 40bps to 15.6% mainly due to 80bps increase in advertising cost (15.2% of net sales against 14.4% of net sales in Q3 FY13) as there were number of product launches and relaunches during the quarter.

CMP Rs162, Target Rs186, Upside 15%

  • Dabur recorded healthy 16.7% yoy revenue growth during Q3 FY14 at Rs19.1bn- ahead of our expectation of Rs18.9bn. Adjusted net profit matched our expectations by recording 15% yoy growth at Rs2.4bn led by higher revenue growth and other income (increased by 23.8% yoy to Rs339mn).

  • Domestic FMCG business revenues (contributing ~70% to consolidated sales) increased by 13.9% yoy driven by 9% yoy underlying volume growth. Rural growth which was outpacing urban growth has slowed down and is now close to urban growth.

-  The hair care segment registered mere 7% yoy growth during Q3 FY14 due to subdued performance of its coconut hair oil portfolio – in line with category growth rate. Shampoos and perfumed hair oils registered 25% yoy and 8% yoy growth respectively. Dabur Almond oil recorded healthy double digit growth. The management plans to launch new products to revive hair care segment growth and has guided for high single digit and low teen revenue growth in coming years.

-  Oral care segment reported 10.4% yoy growth driven by 14% yoy growth in the toothpaste business (Dabur Red Toothpaste and Meswak). Toothpowder sales remained flattish during the quarter. The management plans to focus on its existing brands and improve margin profile of its economy brand Babool. It targets a blended growth (toothpaste + toothpowder) of ~10% for its oral care portfolio in FY14.

-  Home care segment witnessed 16% yoy increase in revenues driven by strong performance of Odonil (50% of home care) and Sanifresh brand. Digestives segment revenues grew by 17.7% yoy driven by strong growth across brands – Hajmola and Pudin Hara.

-  Skin care segment registered 13.4% yoy growth driven strong double digit growth in Fem portfolio and Gulabari. Fem portfolio has seen double digit volume growth aided by the relaunch. The management has guided that the skin category is likely to witness growth in mid-teens in the coming years.

-  Health supplements segment recorded healthy 19.5% yoy revenue growth led by strong growth in Dabur Chyawanprash and Honey. The company launched a new premium offering Dabur Ratnaprash in this segment targeted specially to adults. The management has highlighted that healthcare segment will be the key focus area for the company going ahead.

-  Foods segment registered 18% yoy growth driven by Real portfolio. The segment witnessed substantial improvement in profitability as raw material prices cooled off. The management has stated that it would be fairly active in innovations for its beverage portfolio in the coming summer season.


  • International business contributing 30% to consolidated sales registered 26% yoy growth (11% in constant currency terms) at ~Rs5.7bn primarily led by healthy growth in GCC, Nigeria and Egypt markets. Namaste and African business are witnessing a strong growth trajectory.  Dabur is building a plant in Nigeria to supply to the African region. Currently margins are low at 6-7% due to retrenchment cost in the US and the management expects margins to improve going ahead.


  • Operating margins declined by 40bps to 15.6% mainly due to 80bps increase in advertising cost (15.2% of net sales against 14.4% of net sales in Q3 FY13) as there were number of product launches and relaunches during the quarter. Dabur launched six new products during the quarter – Dabur Ratnaprash, Fem Fairness Naturals, Vatika Olive Hair Oil, Odonil 1 Touch Air Freshener, Honitus: Honey and Tulsi variant and Vatika Mandara and Kunkudukai shampoo with olive conditioning. This is a big positive as the company has become more aggressive about innovation and new product launches. The management expects adspends to sales ratio to remain in the range of ~14-14.5% going forward.

Cost analysis
As a % of net sales
Q3 FY14
Q3 FY13
bps yoy
Q2 FY14
bps qoq
Material cost
48.7
48.8
(6)
46.2
255
Advertising cost
15.2
14.4
80
13.0
220
Personnel cost
8.3
8.0
32
9.1
(78)
Other overheads
12.4
13.1
(68)
13.2
(81)
Total costs
84.6
84.3
38
81.5
316
Source: India Infoline Research
  • We cut our earnings estimates by 1.4-2.1% for FY15/16 to factor in higher A&P expenses.

Changes in estimates
 
FY14E
FY15E
Changes in estimates
New
Old
Change (%)
New
Old
Change (%)
Net sales
71,036
70,264
1.1
81,057
80,853
0.3
EBITDA
11,756
12,015
(2.2)
13,901
13,935
(0.2)
OPM (%)
16.6
17.1
(0.5)
17.2
17.2
(0.1)
PAT
9,169
9,301
(1.4)
10,817
11,046
(2.1)
EPS
5.3
5.3
(0.7)
6.2
6.3
(1.5)
Source: Company, 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 healthy 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 ~19% respectively over FY13-15. At the current market price of Rs162, the stock is trading at 26.1x FY15E EPS of Rs6.2. Maintain Buy with a revised 9-mth price target of Rs186 (earlier Rs196).

Results table
(Rs m)
Q3 FY14
Q3 FY13
% yoy
Q2 FY14
% qoq
Net sales
BSE 344.25 [1.10] ([0.32]%)
NSE 343.70 [0.50] ([0.15]%)

***Note: This is a NSE Chart

 

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