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Dabur: Higher taxes beat down profits - Views on News from Equitymaster

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Dabur: Higher taxes beat down profits

Apr 28, 2011

Dabur India Limited has announced its fourth quarter results for financial year 2010-2011 (4QFY11). The company has reported a 30% YoY and 8.5% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated net sales for 4QFY11 increased by a robust 30% YoY on the back of strong performance by the company’s consumer care division and the inclusion of the financials of the recently acquired Hobi Kozmetik of Turkey and Namasté Laboratories of the US.
  • Operating (EBITDA) margins fell by 0.9% during 4QFY11. This was a result of a sharp rise in other expenditure partially offset by fall in raw material costs, advertisement costs and staff costs (all as a percentage of sales).
  • Net profit for 4QFY11 increased by 8.5% YoY. This increase is on the back of growth in operating profits and higher other income partially offset by higher interest costs and increase in effective tax rates.
  • Net profit for FY11 increased by 13% YoY while net profit margins fell by 0.9% to stand at 14.1%. This performance came on the back of higher operating income and growth in other income. On the other hand, higher interest costs and increase in effective tax rate capped net profit growth.

Consolidated picture
(Rs m) 4QFY10 4QFY11 % Change FY10 FY11 % Change
Net sales 8,583 11,156 30.0% 34,157 41,105 20.3%
Expenditure 6,867 9,026 31.5% 27,614 33,228 20.3%
Operating profit (EBDITA) 1,716 2,130 24.1% 6,544 7,877 20.4%
EBDITA margin (%) 20.0% 19.1%   19.2% 19.2%  
Other income 75 163 117.6% 230 321 39.9%
Interest 52 159 208.3% 202 303 50.1%
Depreciation 149 249 67.7% 562 816 45.2%
Profit before tax 1,590 1,884 18.5% 6,009 7,079 17.8%
Minority Interest - 0   (8) 3  
Extraordinary Items - -   - -  
Tax 236 414 75.6% 985 1,390 41.1%
Profit after tax/(loss) 1,355 1,470 8.5% 5,032 5,686 13.0%
Net profit margin (%) 15.8% 13.2%   14.7% 13.8%  
No. of shares (m) 869 1,741   869 1,741  
Diluted earnings per share (Rs)*         3.3  
Price to earnings ratio (x)*         30.3  

What has driven performance in FY11?
  • Sales improved by 20.3% YoY during the quarter. This growth was primarily driven by volumes. The growth was led by consumer care business and supported by the international business. Hair oil, skin care, oral care, health supplements, food and home care were the main drivers.

    FY11 Division performance
    Segment Growth Key performers
    Hair oil 15.0% Dabur Amla Hair Oil (16.7%), Vatika Hair Oil (13%)
    Shampoo -22.7%  
    Health Supplements 23.0% Dabur Chyawanprash (20.1%), Dabur Glucose (48%)
    Skin care 16.8% Gulabari (18.8%), Fem Bleach (16.1%)
    Oral care 12.1% Toothpastes (16.8%)
    Foods 28.3% Real Fruit Juice (29.6%), Activ Fruit Juice (22.5%)
    Home care 32.5% Sanifresh (22.7%), Odomos (24.8%), Odonil (63.7%)
    Digestives and baby care 8.9% Hajmola Tablets (6.4%), Lal Tail (15.4%)
    Consumer Health Division 13.0%  

  • Sales of International Business Division (IBD) grew 17.6% YoY during the quarter with GCC, Egypt, North Africa, Nigeria and Levant region the top performers. Sales from GCC grew by 20% YoY while that of Egypt grew by 32% YoY. North Africa grew by 43% YoY while Nigeria grew by 35% YoY. Levant grew by 41% YoY each.

    4QFY10 4QFY11   FY10 FY11  
    Total raw material costs 3843.2 4890.4 27% 15507.5 19052.6 22.9%
    Advertising costs 1156.1 1274.2 10% 4934.8 5345.6 8.3%
    Staff costs 754 914.5 21% 2847.4 3222.2 13.2%
    Other expenditure 1113.3 1947.2 75% 4323.8 5607.1 29.7%

  • Operating (EBITDA) profit for the year increased by 20.4% YoY. This comes on the back of lower advertisement costs and lower staff costs partially offset by increase in raw material costs and higher other expenditure (all as a percentage of sales). Advertisement cost grew by 8.3% YoY while staff costs increased by 13.2%. Raw material costs increased by 23% YoY while other expenditure grew by 30% YoY.

  • Net profit for the year increased by 13% YoY. This increase is on the back of growth in operating profits partly offset by increase in interest costs, higher depreciation charge and increase in effective tax rate. Interest costs increased by 50% YoY while depreciation charges increased by 45% YoY. Dabur’s effective tax rate increased as a result of some of the company’s manufacturing facilities exhausting their tax exempt period. Effective tax rate increased from 16.4% in FY10 to 19.6% in FY11.

    Consolidated EBIT margin
      4QFY10 4QFY11 FY10 FY11
    Consumer Care Business 29.2% 24.8% 27.4% 25.6%
    Consumer Health Business 27.5% 29.1% 26.3% 24.7%
    Foods Business 17.4% 17.4% 17.4% 18.5%
    Retail Business -95.4% -33.6% -101.9% -44.6%
    Others 0.1% 14.6% 6.9% 7.2%

    What we expect?
    At a price of Rs. 99, the stock is trading at 23.3 times our estimated FY13 earnings (RPro subscribers click here. The company has performed well on the back of its CCD and international business with health supplements, home care, foods, oral care and digestives divisions seeing good traction. However at these levels we feel that growth from a 2-3 year perspective is priced in the stock. We therefore advise our subscribers to be cautious while investing in this counter.

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