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Dabur: Strong volume-led growth
May 3, 2013

Dabur India Limited has announced its fourth quarter results for financial year 2012-2013 (4QFY13). The company has reported a 12% YoY and 18% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Backed by 15% growth in the domestic consumer business on 12% rise in volumes, Dabur posted a 12% increase in topline. For FY13, revenues increased by 16.4%.
  • The company managed to expand operating margin by 0.8% aided by controlled rise in raw material costs and ad-spends. During FY13, operating margin remained flat.
  • Net profit grew by 17.6% aided by 102% jump in other income earned that offset a 162% surge in interest charges. For the full year FY13, profits were up by 18.4%.

Consolidated picture
(Rs m) 4QFY12 4QFY13 % Change FY12 FY13 % Change
Revenues 13,719 15,437 12.5% 53,054 61,761 16.4%
Expenditure 11,399 12,708 11.5% 44,153 51,463 16.6%
Operating profit (EBDITA) 2,320  2,729 17.6% 8,902 10,298 15.7%
EBDITA margin (%) 16.9% 17.7% 0.8% 16.8% 16.7% -0.1%
Other income 114 230 102.3% 574  945 64.6%
Interest 57 150 161.9% 538  589 9.4%
Depreciation 293 282 -4.0% 1,032 1,124 8.9%
Profit before tax 2,083  2,527 21.3% 7,905 9,530 20.6%
Tax 377 507 34.3% 1,464 1,826 24.8%
Minority Interest 0  15   (8) 24  
Extraordinary Items  - -   -  (46)  
Profit after tax/(loss) 1,705  2,006 17.6% 6,449 7,634 18.4%
Net profit margin (%) 12.4% 13.0%   12.2% 12.4%  
No. of shares (m)         1,743  
Diluted earnings per share (Rs)*         4.4  
Price to earnings ratio (x)*         35.2  
* On a trailing 12-months basis

What has driven performance in 4QFY13?
  • Riding on a 15% growth in the domestic business and 12% rise in the international business, Dabur clocked a 12.5% increase in topline. Growth in the domestic business was largely volume-driven with a rise in offtake of 12%, the highest growth in the last 11 quarters. Project Double was completed during the quarter resulting in direct coverage rising to 30,091 villages from 14,865 villages in FY11. This benefitted categories like Home care and Skin care that grew by 33% and 11%, respectively. Health supplements grew by 22.6% driven by strong growth in Honey and Glucose. Backed by robust growth in premium toothpaste brands, oral care reported a 12.3% rise in sales during the quarter. The foods business continued its strong growth trajectory clocking a 22.6% rise in sales. The hair care category grew by 9.6% driven by 13% growth in perfumed hair oils and 29.4% jump in shampoos. On the back of robust growth in the Fem portfolio, the skin care business posted 11% rise in sales for the quarter. Dabur's international business saw a 10-11% organic volume growth. However, Namaste's revenues dipped by 10%. But the company has successfully completed the change of the business name in the US.
  • 4QFY13 division performance (domestic)
    Segment Growth
    Hair oil 7.00%
    Shampoo 29.40%
    Oral care 12.30%
    Health Supplements 22.60%
    Skin care 11.10%
    Foods 22.60%
    Home care 33.30%
    Digestives 1.30%
    OTC 16.70%
    Ethicals 9.00%

  • The company's operating margin improved for yet another quarter backed by softening price of inputs. The raw material to sales ratio fell by 2% to 47.9% during the quarter. This coupled with a 0.8% cut in ad-spends particularly in the domestic markets offset the 0.9% rise in employee costs. Among product segments, consumer care saw a 1.1% rise in its operating performance. Profitability of the foods business continued to be adversely impacted by the CVD impact, currency fluctuations and higher concentrate price. The EBIT margin of this segment slid by 3.2% during the quarter.

All round picture
  % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin,gain/(decline) basis points
Consumer Care  84% 13% 19% 23% 106.2
Foods  13% 19% -3% 16% -315.2
Retail  1% 29% -53% -19%  
Others 2% -34% 285% 6% 503.9

  • Despite a 162% jump in interest costs, profits have grown by 17.6% aided by a 102% surge in the other income earned during the quarter. The tax incidence rose to 20% from 18% in the year-ago quarter.

What we expect?

At the current price of Rs 155, the stock is trading at 23 times its FY15 forecasted earnings.

The rollout of Project Double in FY13 in 10 states led to increase in direct rural coverage to 30,091 villages from 14,865 villages in March 11. Dabur's offtake has gained momentum in the fourth quarter. This could be achieved by pick-up in rural offtake after completion of Project Double and improved sales from the Canteen Stores Department channel. Going forward, product categories like home care and skin care are expected to enhance rural penetration and drive overall sales growth. However, the combined market share of both these categories is only 13% of total sales. Big categories like hair care (market share 30%) and oral care (market share 17%) are still facing competitive pressures. Its fast growing food business consisting of juices had been facing capacity pressures. This is expected to be resolved by its soon to be inaugurated facility in Sri Lanka. But margins in this segment are much lower than the consumer care segment.

Although the long-term potential of the stock remains bright but concerns such as slowdown in the discretionary spending continue to persist. We had given a BUY on the stock on 20th July 2012. We would like to inform our subscribers that our past estimates need to be revised as well as updated with forecast for FY16. As this may take time, we would request our subscribers to bear with us and revisit the recommendation link in future. We would, also, be sending mailers once we have put up the revised target price for the stock based on FY16 forecast numbers.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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