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Dabur: Stellar performance! - Views on News from Equitymaster
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Dabur: Stellar performance!
Apr 26, 2006

Introduction to results
Ayurvedic products major, Dabur, announced its fourth quarter and full-year numbers recently. The company reported yet another quarter of sustained growth momentum, along with margin expansion of 170 basis points. However, lower other income and an extraordinary item to the tune of Rs 127 m, relating to a loss on sale of investments, led to the bottomline growth trailing that of the topline. Barring this impact, bottomline growth has actually outpaced topline growth by a factor of two. The company closed its books for the year with an equally strong growth in revenues and better bottomline growth (excluding exceptional expenses).

Consolidated picture
(Rs m) 4QFY05 4QFY06 Change FY05 FY06 Change
Net sales 3,950 4,799 21.5% 15,370 18,996 23.6%
Expenditure 3,373 4,016 19.1% 13,281 16,088 21.1%
Operating profit (EBDITA) 577 783 35.8% 2,088 2,908 39.3%
Operating profit margin (%) 14.6% 16.3%   13.6% 15.3%  
Other income 32 22 -30.9% 92 134 45.2%
Interest 26 24 -7.7% 124 164 31.8%
Depreciation 97 69 -29.2% 295 312 5.7%
Profit before tax 486 713 46.8% 1,761 2,566 45.7%
Tax 53 80 50.2% 191 300 57.2%
Minority Interest 5 (6)   (12) 3  
Exceptional items - (127)   - (127)  
Profit after tax 437 500 14.3% 1,558 2,142 37.5%
Net profit margin (%) 11.1% 10.4%   10.1% 11.3%  
Effective tax rate (%) 10.9% 11.2%   10.8% 11.7%  
No. of Shares (m) 286.4 573.3   286.4 573.3  
Diluted earnings per share* (x)         3.7  
P/E ratio (x)         37.5  

What is the company’s business?
Dabur India Limited is India’s fourth largest FMCG company in India, with interests in health care, personal care and food products. The company’s name is generic to ‘ayurvedic’ products in India. The company’s top 5 brands, namely Vatika (hair oils), Chyawanprash, Hajmola, Amla oil and Lal Dant Manjan (oral care), contributed 55% to revenues in FY06. In FY04, Dabur approved the demerger of its FMCG and pharma businesses, into two separate listed entities. The move was aimed at bringing in more focus to both businesses, as well as to unlock value for shareholders. Further, the company acquired Balsara (oral and household care products) in FY05 for a consideration of Rs 1.4 bn.

What has driven performance in FY06?
Topline continues to score: The company reported an enticing topline growth, driven by a pick-up in key categories in the consumer care division, consumer health care (up 39% YoY), foods (46% YoY) and its international business, which registered a slightly slower 19% YoY growth including exports of Balsara products. Home care business also recorded an astounding growth of 63% YoY, mainly driven by products like Odonil and Sanifresh.

Dabur’s hair care division also performed well with its product, Shanti Amla, upping its market share by 80 basis points during the year. Its key brand, Anmol, grew by 33% YoY. It can be recollected that in the penultimate quarter, the company has test launched a new variant called ‘Anmol Jasmine’ coconut oil, which received good response. Shampoos too contributed to the performance of this category with Vatika Henna Cream shampoo growing by 12% YoY. Baby and skin care segment continued its upward trajectory posting a 34% YoY growth.

Also, since winters were severe this year, Chyawanprash performed well, growing by 12% YoY and in the process increasing its market share by 180 basis points to 62.7% in FY06. Chyawanshakti, the first variant of Chyawanprash, was test launched during the year, a variant that is targeted at working adults.

International aid: The international business grew by 19% YoY. It’s Egyptian and Bangladeshi subsidiaries continue to display strong growth and grew by 49% and 54% YoY respectively during the year. It must be noted that brands like Amla hair oil and Vatika shampoo led the growth in International markets. It must also be recollected that Dabur had acquired a company called ‘Redrock’ in Dubai with manufacturing facility and distribution infrastructure, and was rechristened Dabur International Ltd. This is Dabur’s hub for its international expansion plans. In Gulf countries, the company reported a 27% YoY growth in sales

Consolidated cost break-up
as a % of net sales 4QFY05 4QFY06 FY05 FY06
Total Cost of goods 44.6% 42.8% 45.0% 42.5%
Staff Cost 6.4% 7.5% 6.5% 7.2%
Advertisement & Promotion 10.1% 9.3% 11.2% 11.7%
Other Expenditure 24.3% 24.0% 23.7% 23.3%
Total Expenditure 85.4% 83.7% 86.4% 84.7%

Revenue growth beaten by bottomline yet again: Bottomline continued to outpace topline, which was possible due to savings from fiscal benefits from new manufacturing units and efficiencies in procurement of key raw and packaging materials such as edible oils and honey. However, this benefit was curtailed to some extent owing to the rise in staff costs, which was seemingly owing to the additional staff strength, post the Balsara acquisition. Growth in operating profits was largely reflected in the bottomline growth of 38% during the year. It must be noted that this is despite an extraordinary item to the tune of Rs 127 m (loss on sale of investments) during the year.

Over the past few quarters
  4QFY05 1QFY06 2QFY06 3QFY06 4QFY06
Sales growth (YoY) 15.1% 20.4% 26.0% 26.0% 21.5%
OPM (%) 14.6% 11.8% 17.2% 15.4% 16.3%
Net profit growth (YoY) 60.5% 61.3% 48.5% 37.6% 14.3%

As can be seen from the above table, bottomline growth in the March quarter is the lowest when compared to the previous five quarters, due to the loss on investment. Barring this effect, bottomline has actually grown by over 43% YoY during the quarter and close to 46% YoY for the fiscal.

What to expect?
At the current price of Rs 140, the stock is trading at 29.7 times and 3.6 times our estimated FY08 earnings and sales respectively. The results have beaten our expectations on the profit front, although our topline estimates were quite in-line with the actual performance. We will be upgrading our numbers for the company on the back of robust performance in FY06, which we expect will continue into the following years as well.

The business restructuring has paid off and that is good news. Also, with the acquisition of Balsara, Dabur will be a big player in the Indian oral care market. What is more, the company has managed to turn its foods division profitable and will wipe out the division’s accumulated losses soon. Dabur is one of our top picks in the FMCG sector, as it will benefit from an uptick in consumption, as well as from the acquisition of Balsara. In our view, Dabur has one of the best growth stories in the FMCG space.

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