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Dabur: Robust sales but margins shrink
Feb 1, 2012

Dabur India Limited has announced its third quarter results for financial year 2011-2012 (3QFY12). The company has reported a 34.5% YoY and 11.9% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated sales for 3QFY12 increased by 34.5% YoY backed by robust growth clocked by all divisions. Growth was driven by a mix of price increases, volume growth and marginal translational gains. For 9mFY12, sales grew by 32% on a YoY basis.
  • Operating (EBITDA) margins fell by 350 basis points YOY dragged down by higher raw material expense and promotional spends. The EBIDTA margin contracted by 240 basis points during 9mFY12.
  • At the net level, profits grew by a modest 11.9% YoY on a 10% rise in operating income. A six-fold jump in other income earned during the quarter was partially offset by a 240% surge in interest expense. For 9mFY12, net profit was up by 12.5%.

Consolidated picture
(Rs m) 3QFY11 3QFY12 % Change 9mFY11 9mFY12 % Change
Revenues 10,869 14,631 34.6% 29,948 39,463 31.8%
Expenditure 8,778 12,332 40.5% 24,332 33,027 35.7%
Operating profit (EBDITA) 2,091 2,299 9.9% 5,617 6,436 14.6%
EBDITA margin (%) 19.2% 15.7% -3.5% 18.8% 16.3% -2.4%
Other income 20 127 552.3% 159 384 141.9%
Interest 54 183 240.6% 144 481 233.5%
Depreciation 160 188 17.7% 437 517 18.3%
Profit before tax 1,897 2,055 8.3% 5,195 5,822 12.1%
Minority Interest (4) (10)   3 (8)  
Extraordinary Items - -   - -  
Tax 357 337 -5.6% 976 1,087 11.3%
Profit after tax/(loss) 1,544 1,728 11.9% 4,216 4,744 12.5%
Net profit margin (%) 14.2% 11.8% -2.4% 14.1% 12.0%  
No. of shares (m)         1,742  
Diluted earnings per share (Rs)*         3.6  
Price to earnings ratio (x)*         27.2  
* On a trailing 12-months basis

What has driven performance in 3QFY12?
  • Dabur recorded a robust 20.2% YoY revenue growth driven primarily by 10% higher offtake even after excluding the impact of the recent acquisitions. Its domestic business forming a major share of 69% in overall sales grew by 16.2% YoY during the quarter. Its international business grew organically by 37.8% while in constant currency terms the growth was 26.5%. Among business segments, the largest segment consumer care posted a robust 35% growth. In the domestic consumer care market, the growth was driven by double-digit growth in all categories barring skin-care which grew by 4.9% during the quarter. Hair care and oral care, two of the largest categories, witnessed growths of 19.3% and 11.6%, respectively. Even digestives, with less than 10% share in consumer care sales, reported a strong 19.3% rise. The second largest segment, foods posted a 22% jump in sales. This segment grew by 17.4% in the domestic market led by growth across regions and channels. Sales in the international market were led by over 20% growth in the key markets of Gulf Cooperation Council, Nigeria and Egypt. The Hobi and Namaste businesses contributed 13% to consolidated sales during the quarter. However Yemen, Syria and Libya markets continued to witness low momentum in sales due to political disturbance.

    3QFY12 division performance (domestic)
    Segment Growth Key performers
    Hair oil 22.00%  
    Shampoo 4.10%  
    Oral care 11.60% Toothpastes (14.4%), Toothpowder (4.5%)
    Health Supplements 13.50%  
    Skin care 4.90%  
    Foods 17.40%  
    Home care 18.00%  
    Digestives and baby care 19.30%  
    OTC 14.40%  
    Ethicals 4.00%  

  • Dabur's operating performance has not kept pace with the brisk topline growth as commodity inflation and higher promotional spends continued to play spoilsport. On account of high input prices and weak rupee further inflating import bill particularly in case of juices, the company's COGS to sales ratio increased to 50.6% from 48% in the year-ago quarter. The proportion of advertisement & promotional spends in sales have shot up from 12.4% to 13.5%. Resultantly, its operating margin suffered a 350 basis points contraction to 15.7%. Among business segments, EBIT margin of consumer care division decreased by 500 basis points to 21% and the EBIT margin of Food division fell by 300 basis points to 14% during the quarter.

    All round picture
      % contribution to sales Revenue growth PBIT growth PBIT margin (%) gain/(decline) basis points
    Consumer Care 87% 35% 9% 21% -503.37
    Foods 9% 22% 11% 14% -317.92
    Retail 1% 112% 65% -16%  
    Others 3% 71% 934% 10% 819.72

  • Growth in earnings has been relatively subdued at 11.9% due to a slower 10% rise in operating income. A 552% jump in other income earned during the quarter has been partially offset by a 240% surge in the interest outgo. The tax incidence fell to 16.4% from 18.8% in the year-ago quarter.

What to expect?
At a price of Rs. 96.5, the stock is trading at 29 times our estimated FY14 earnings. Dabur has been growing at a fast clip backed by robust growth in offtake of majority of its products. However earnings growth has lagged due to higher input costs causing margins to shrink. Dabur expects 10% volume growth in future which coupled with calibrated price increases should result in a slow & steady improvement in margins over the next 2-3 quarters. The company has clearly outlined that its promotional spends will remain aggressive to ward off competition. Dabur, which earns a little over 50% from rural sales, is strengthening its distribution network in the rural market by increasing direct coverage. The company is employing a large number of outsourced sales personnel to promote its smaller brands in villages. This is expected to improve rural mix and increase sales. However we believe that the stock's stretched valuations do not justify its future prospects and advise our subscribers to be cautious.

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