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Dabur: Steady going! - Views on News from Equitymaster

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Dabur: Steady going!
Jan 30, 2008

Performance summary
  • Topline grows by 14.7% YoY in 3QFY08 with domestic sales growing by 12% YoY and international operations reporting 27% YoY growth.
  • Operating margins on consolidated basis remain stable at 17.9%.

  • Net profits on a consolidated and standalone basis are up 19% YoY and 23% YoY respectively for 3QFY08.

Consolidated performance
Rs(m) 3QFY07 3QFY08 (%) Change 9mFY07 9mFY08 (%) Change
Net sales 5,664 6,497 14.7% 15,124 17,546 16.0%
Expenditure 4,660 5,335 14.5% 12,508 14,432 15.4%
Operating profit (EBDITA) 1,004 1,162 15.7% 2,616 3,115 19.0%
EBDITA margin (%) 17.7% 17.9%   17.3% 17.8%  
Other income 33 49 48.5% 147 203 38.1%
Interest 31 44 41.9% 126 133 5.6%
Depreciation 115 105 -8.7% 318 304 -4.3%
Profit before tax 891 1,062 19.2% 2,319 2,880 24.2%
Extraordinary item - -   41 -  
Minority interest 17 20.2 - 19.8 29.8 50.5%
Tax 115 138.7 20.4% 319 378 18.4%
Profit after tax/(loss) 793 944 19.0% 2,061 2,533 22.9%
Net profit margin (%) 14.0% 14.5%   13.6% 14.4%  
No. of shares (m) 864.0 864.0   864.0 864.0  
Diluted earnings per share (Rs)*         3.8  
Price to earnings ratio (x)*         27.0  
* 12 month trailing earnings

What has driven performance in 3QFY08?
  • On a consolidated basis, the topline grew by 14.7% YoY for 3QFY08. While the consumer care and foods division grew by 14.8% YoY, consumer health care (CHD) reported a growth of 6.7% YoY. CHD witnessed improvement in performance with Honitus and Throat drops witnessing strong double-digit growth rates. Aggressive advertisements, repositioning and new launches aided the performance.

    Consolidated Segment Revenue
    (Rs m) 3QFY07 3QFY08 (%) Change 9mFY07 9mFY08 (%) Change
    Consumer care 4,644 5,330 14.8% 12,135 14,089 16.1%
    % of total revenue 80.6% 80.9%   78.8% 79.1%  
    Consumer health 408 435 6.7% 1,141 1,159 1.6%
    % of total revenue 7.1% 6.6%   7.4% 6.5%  
    Foods 592 681 14.9% 1,797 2,208 22.9%
    % of total revenue 10.3% 10.3%   11.7% 12.4%  
    Others 121 141 16.4% 319 361 13.0%
    % of total revenue 2.1% 2.1%   2.1% 2.0%  
                 
    Total 5,765 6,587 14.2% 15,392 17,817 15.8%

  • As seen from the table below, all categories in the consumer care division performed well. In shampoos, Dabur gained additional market share of 67 basis points, while new variants were launched under Chyawanprash brand and baby care segment. Dabur has also outperformed the toothpaste category with a growth of 34.6% (AC Neilsen-Apr-Dec 07) as against category growth of 9.6%.

    Division performance
    Segment Growth Key performers
    Hair oil 11% Dabur Amla (18%), Anmol Coconut (15%) Anmol Mustard (17.9%)
    Shampoo 23.3% Vatika (Smooth & Silky) (19%)
    Health Supplements 15% Chyawanprash (10% YoY), Glucose (41% YoY) and Dabur Honey (25% YoY)
    Baby and Skin care 4.8% Gulabari (26.8%)
    Digestives 15% PudinHara (18 %), HajmolaCandies( 29%), Hajmola tablets (11.6%)
    Oral care 16% Red toothpaste (26%), Babool (37%), Meswak (34%)
    Home care 12% Odonil(18.5%), sanifresh (14%)

  • The standalone topline was up 12% YoY in 3QFY08 contributing 80% to consolidated sales. Foods division grew by 21% YoY in 9mFY08, with Real Fruit juices witnessing a growth of 23% YoY and Hommade range growing at 10% YoY in 9mFY08. International business division recorded a growth of 29% YoY with GCC, Egypt and Africa driving sales. Sales in GCC region increased by 46% YoY, while Dabur Egypt grew by 72% YoY.

  • For 3QFY08, the consolidated margins have remained stable. While raw material prices as percentage of sales have reduced, other expenses have increased. On a standalone basis, margins have improved by 0.7% in 3QFY08. On segmental PBIT basis, while the PBIT margins of consumer health care marginally reduced, consumer division margins improved to 27.6% in 3QFY08 (26.2% in 3QFY07) and that of the foods division touched 7% (2.8% in 3QFY07).

  • On a consolidated basis, the bottomline grew by 19% YoY in 3QFY08. Lower depreciation costs aided the performance. The standalone profits grew by 23% YoY for 3QFY08 indicating that the domestic segment is growing at a faster rate. For 9mFY08, excluding extraordinary items, the bottomline is up 25% YoY on both consolidated and standalone basis.

What to expect?
At the current price of Rs 103, the stock is trading at a price to earnings multiple of 18.4 times our FY10 estimates. While margins have outperformed our estimates, the topline is marginally lower than our FY08 estimates. Dabur has created seven growth engines to drive its performance. All its segments, including the international business, are performing well. Given the new launches, repositioning, higher ad spends and operating efficiencies, we are bullish on the growth prospects of the company. However, at the current price levels, the stock seems to be fairly priced.

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