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Dabur: Uptick in urban demand eludes - Views on News from Equitymaster
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Dabur: Uptick in urban demand eludes
Feb 4, 2015

Dabur India Limited has announced its third quarter results for financial year 2014-2015 (3QFY15). The company has reported a 9% YoY and 16% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Dabur recorded a 9% growth in consolidated revenues in 3QFY15 led by 11.7% growth in the domestic business and 3.6% rise (constant currency terms) in international business. For 9mFY15, revenue growth recorded was 10.8%.
  • The operating margin expanded by 1.3% in 3QFY15 due to lower costs of goods sold and other expenses (both as a proportion of sales). The operating margin for 9mFY15 was flat at 16.5%.
  • Net profits grew by 16.4% YoY in 3QFY15. For 9mFY15, profits were up by 15% YoY.

Consolidated picture
(Rs m) 3QFY14 3QFY15 % Change 9mFY14 9mFY15 % Change
Revenues 19,046 20,790 9.2% 53,059 58,775 10.8%
Expenditure 16,070 17,271 7.5% 44,414 49067 10.5%
Operating profit (EBDITA) 2,976 3,519 18.3% 8,645 9,708 12.3%
EBDITA margin (%) 15.6% 16.9% 1.3% 16.3% 16.5% 0.2%
Other income 339 386 13.6% 896 1,134 26.5%
Interest 72 95 32.7% 405 298 -26.3%
Depreciation 255 309 20.9% 712 868 22.0%
Profit before tax 2,988 3,500 17.2% 8,425 9,675 14.8%
Tax 546 663 21.5% 1,609 1,839 14.3%
Minority Interest 7 10   23 25  
Extraordinary Items (6) -   (7) -  
Profit after tax/(loss) 2,429 2,828 16.4% 6,786 7,811 15.1%
Net profit margin (%) 12.8% 13.6% 0.8% 12.8% 13.3% 0.5%
No. of shares (m)         1,757  
Diluted earnings per share (Rs)*         5.8  
Price to earnings ratio (x)*         46.1  
* On a trailing 12-months basis

What has driven performance in 3QFY15?
  • Dabur posted a 10% constant-currency growth in consolidated sales. The growth was led by 11.7% growth in domestic business and a 3.6% increase in overseas business in constant-currency terms. The domestic FMCG business was driven by volume growth of 7.4%. Most of the categories, barring skin care and OTC & ethicals, reported double-digit growth during the quarter. The skin care portfolio grew by a mere 4% as supply constraints led to muted growth in the Fem bleach portfolio. The growth in OTC & ethicals portfolio was pulled down due to subdued performance of OTC product Lal Tail even as ethicals saw double-digit growth due to various initiatives such as health camps, medical and digital marketing. However, health supplements and digestives have posted double-digit growth for the quarter.

  • The company has performed well in toothpastes and hair oil even as these categories that have been de-growing. In toothpastes, the company posted 19% growth on the back of double-digit growth in premium offerings Red toothpaste and Meswak. The company's hair oils portfolio grew by 12% driven by strong growth in coconut oils. The company has launched Anmol Jasmine hair oil in the light coco hair oil segment. Even the shampoos portfolio grew by 12.8% driven by strong volumes. The home care registered the fastest growth of 16.2% on strong volume growth in Odomos. The food business saw a moderated growth of 11.8% due to high base effect and bunching of sales in 2QFY15 on account of festive season.

  • The overseas business clocked a muted growth of 3.6% in constant currency terms due to pipeline corrections in the Namaste business and currency devaluation in Egypt and Turkey.

    3QFY15 division performance (domestic)
    Segment Growth
    Hair care 12.1%
    Oral care 11.3%
    Health Supplements 13.5%
    Skin care 4.0%
    Foods 11.8%
    Home care 16.2%
    Digestives  11.6%
    OTC & Ethicals 8.8%

  • The operating profit margin expanded by 1.3% during the quarter due to a 1.2% fall in the cost of goods to sales ratio on lower crude prices. Even other expenses to sales ratio was down by 0.5% due to savings in freight, synergies and phasing of expenses. These savings more than offset higher staff costs and ad-spends for the quarter. As per the company, lower input costs and better product mix equally contributed in the margin expansion. The consumer care business clocked a 2% expansion in EBIT margin. However, the food segment saw its EBIT margin contract by 1.6% during the quarter.

    All round picture
      % contribution to sales Revenue growth  PBIT growth  PBIT margin (%) PBIT margin  gain/(decline) basis points
    Consumer Care  86% 8% 19% 21% 204.4
    Foods  11% 13% 10% 12% -158.4
    Others 2% 34% -925% 2%  

  • At the net level, margin has improved by a mere 0.8% due to rise of over 20% in each of interest costs and depreciation charges during the quarter. The tax incidence reduced to 18.9% in 3QFY15 from 18.3% in 3QFY14. The other income earned was up by 13.6% during the quarter.
What to expect?
Dabur had recalibrated its focus towards urban markets in a bid to benefit from revival in demand. But the pick-up has not taken place till now and rural growth continues to outpace growth in the urban general trade channel. Even the Namaste business has dragged down the overall overseas business growth. Therefore the overall topline growth for 9mFY15 has been below 15% targeted earlier. Going ahead, the company expects urban demand to gain momentum and benefits from Project Core to trickle in. In the international front, the company continues to remain optimistic of the long term demand potential of the Namaste business in the Sub Saharan Africa.

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. At the current price of Rs 266, the stock is trading at 33 times its FY17 forecasted earnings. At current valuations the stock is overpriced and we would recommend that investors not buy the stock at current price levels.

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