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Dabur: Robust financials on strong offtake - Views on News from Equitymaster

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Dabur: Robust financials on strong offtake
Feb 4, 2014

Dabur India Limited has announced its third quarter results for financial year 2013-2014 (3QFY14). The company has reported a 16.8% YoY and 15% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Dabur clocked a 16.7% topline growth in 3QFY13 led by 9.2% growth in offtake. For 9mFY14, the revenues have grown by 14.8% on a 10% volume growth.
  • Operating margin contracted by 0.4% due to a steep rise in ad-spends and staff costs. The operating margin expanded by 0.4% during 9mFY14 aided by lower cost of goods to sales ratio.
  • Net profit grew by 15% on a 13.5% growth in operating profit and 24% rise in other income. For 9m FY14, the net profit was higher by 20.6%.
  • The company has declared an interim dividend of Rs 0.75 paise per share of face value of rupee one.

Consolidated picture
(Rs m) 3mFY13 3mFY14 % Change 9mFY13 9mFY14 % Change
Revenues 16,360 19,093 16.7% 46,325 53,200 14.8%
Expenditure 13,740 16,117 17.3% 39,011 44590 14.3%
Operating profit (EBDITA) 2,620 2,976 13.6% 7,314 8,610 17.7%
EBDITA margin (%) 16.0% 15.6% -0.4% 15.8% 16.2% 0.4%
Other income 274 339 23.8% 769 931 21.1%
Interest 78 72 -7.6% 439 405 -7.9%
Depreciation 236 255 8.2% 640 712 11.2%
Profit before tax 2,580 2,988 15.8% 7,003 8,425 20.3%
Tax 464 546 17.6% 1,320 1,609 21.9%
Minority Interest 6 7   9 23  
Extraordinary Items - (6)   (46) (7)  
Profit after tax/(loss) 2,110 2,429 15.1% 5,629 6,786 20.6%
Net profit margin (%) 12.9% 12.7%   12.2% 12.8%  
No. of shares (m)         1,744  
Diluted earnings per share (Rs)*         5.0  
Price to earnings ratio (x)*         33.5  
* On a trailing 12-months basis

What has driven performance in 3QFY14?
  • Dabur posted a 16.7% revenue growth backed by 14% growth in the domestic FMCG business and 26% increase in international operations. Barring hair care, all the products in the domestic consumer care reported double-digit growth during the quarter. Health supplements and digestives were the fastest growing segments, each clocking a growth of over 16%. Strong performance in chywanparash and honey led to robust sales in health supplements. The company launched a new premium offering Dabur Ratnaprash during the quarter. The robust growth in health supplements was aided by good performance of Hajmola and Pudin Hara. Even the homecare portfolio registered a strong growth of 16% backed by good performance of Odonil and Sanifresh.

  • Each of the skincare and OTC & ethicals product segments registered growth of 13% each. Oral care grew by 10.4% led by 14% growth in premium toothpastes even as Red toothpowder performance remained flat during the quarter. The hair care segment continued to grow in single-digits due to subdued growth in coconut hair oils and 8% rise in perfumed hair oils. The company launched Vatika enriched olive hair oils during the quarter. The shampoo portfolio grew by a strong 25% for the quarter. Dabur's food business comprising of juices and Hommade culinary products grew by a robust 18% during the quarter. The international business grew organically by 29% led by strong growth in GCC, Egypt and Nigeria. Even the Namaste business grew in double-digits with the non-US sales outperforming the US sales.

    3QFY14 division performance (domestic)
    Segment Growth
    Hair care 6.90%
    Oral care 10.40%
    Health Supplements 19.50%
    Skin care 13.40%
    Foods 18%
    Home care 16%
    Digestives 17.70%
    OTC & Ethicals 13.20%

  • However operating profitability dipped during the quarter on account of higher ad-spends with a string of new product launches such as Ratnaprash, Vatika enriched olive oil, Odonil and juice variants as well as Fem, no ammonia. The ad-spends to sales ratio rose by 0.8% and was partially offset by a 0.7% savings in other expenses as a proportion to sales. Even staff costs to sales ratio was up by 0.3% during the quarter resulting in a 0.4% drop in operating margin for the quarter. Both consumer care and food businesses reported erosion in EBIT margins.

    All round picture
      % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin gain/(decline)
    basis points
    Consumer Care 87% 18% 9% 21% -163.7
    Foods 10% 18% 56% 9% -163.8
    Retail 1% 15% -66% -14%  
    Others 1% -21% 823% 4% 393.2

  • Net profits grew by a relatively faster 15.1% on a 13.6% rise in operating profit. This was on account of 23.8% jump in other income earned and 7.6% reduction in interest charges.
What to expect?
At the current price of Rs 169, the stock is trading at 22 times its FY16 forecasted earnings.

Dabur India has been reporting good growth in offtake inspite of sluggish discretionary spends. Both its consumer care and food businesses have been growing in double-digits. Even its international operations have been a strong driver, reporting double-digit growth. Going ahead, the company expects a pick-up in urban growth. After widening its rural reach through Project Double in FY13, Dabur has initiated Project Core to increase the footprint of its healthcare products in the urban-centric chemists channels. Under this initiative, the company would be increasing its chemist coverage from 55,000 to 1,25,000 over the next one year. Additionally, Dabur wants to increase the scale of healthcare product offerings through the chemist channel and thereby boost its margin profile.

We had given a BUY on the stock on 20th July 2012. The stock met our target price on 10th May 2013 after which we had given a SELL. As the current valuations do not provide sufficient level of upsides, we would recommend a SELL on the stock at current price levels.

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