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Dabur: Margin compression continues
May 4, 2012

Dabur India Limited has announced its fourth quarter results for financial year 2011-2012 (4QFY12). The company has reported a 23% YoY and 16% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance Summary
  • Riding on robust double-digit growth in all its segments, Dabur's consolidated sales for 4QFY12 increased by 23% YoY. The growth was driven by volume growth, price increases and marginal translational gains. For FY12, the company's sales surged by 29.6% YoY.
  • However, higher raw material costs and promotional spends continued to exert pressure on margins. The operating margin contracted by 310 basis points during the quarter. For FY12, operating margin slid by 270 basis points to 16.8%.
  • Dabur has been able to limit the decline in net margin to 80 basis points on the back of lower interest and tax outgo and flattish rise in depreciation expense. The net margin for FY12 contracted by 170 basis points during 4QFY12.

Consolidated picture
(Rs m) 4QFY11 4QFY12 % Change FY11 FY12 % Change
Revenues 11,141 13,726 23.2% 41,045 53,054 29.3%
Expenditure 8,969 11,483 28.0% 33,032 44,153 33.7%
Operating profit (EBDITA) 2,172 2,244 3.3% 8,013 8,902 11.1%
EBDITA margin (%) 19.5% 16.3% -3.1% 19.5% 16.8% -2.7%
Other income 163 190 16.6% 321 574 78.6%
Interest 159 57 -64.0% 303 538 77.5%
Depreciation 291 293 0.8% 952 1,032 8.4%
Profit before tax 1,884 2,083 10.5% 7,079 7,905 11.7%
Minority Interest 0 0   3 (8)  
Extraordinary Items - -   - -  
Tax 414 377 -8.9% 1,390 1,464 5.3%
Profit after tax/(loss) 1,470 1,705 16.0% 5,686 6,449 13.4%
Net profit margin (%) 13.2% 12.4%   13.9% 12.2%  
No. of shares (m)         1,742  
Diluted earnings per share (Rs)*         3.6  
Price to earnings ratio (x)*         29.9  

What has driven performance in 4QFY12?
  • Dabur saw a 23% topline growth led by 12.4% rise in volumes. All its business segments reported robust growth in revenues during the quarter. Its domestic business, forming a majority 70% share of overall sales, grew by 19.2%. Among products, the largest segment consumer care grew by 20% on the back of double-digit growth in most categories. Only oral care registered a 7.7% rise on account of poor performance by toothpastes and toothpowders. In the largest category hair care, hair oils grew by a robust 20.2% and shampoos staged a recovery led by strong performance of the Henna variant. Robust growth in sales of Dabur Honey and Chyawanprash translated into a 11% growth in health supplements. Even digestives grew by 19.4% led by brisk growth in the Hajmola brand. The second largest segment, foods posted a 30% jump in sales driven by strong growth momentum of Real and Active brands. In the overseas business, the recently acquired Hobi and Namaste businesses recorded growths of 22% and 15.6%, respectively whereas other international operations grew by 46% backed by double-digit growth in key markets of Gulf Cooperation Council, Nigeria and Egypt.

    Segmentwise Performance
    Segment Growth Key performers
    Hair oil 20.20%  
    Shampoo 16.80%  
    Oral care 7.70% Toothpastes (8.3%)
    Health Supplements 10.90%  
    Skin care 17.60%  
    Foods 30.40%  
    Home care 18.00%  
    Digestives 19.40%  
    OTC 11.40%  
    Ethicals 18.00%  

  • Dabur's operating profitability has been adversely impacted by the continued commodity inflation in oils and agri-based inputs. As a result, the company's COGS to sales ratio increased from to 50% from 47% in the year-ago quarter. Due to higher competitive intensity, the proportion of advertisement & promotional spends to sales have shot up from 11.4% to 13.3%. The only saving grace has been the reduction in staff costs and other expenditure (both as a percentage of sales). Consequently its operating margin contracted by 310 basis points during the quarter. The EBIT margins of consumer care and food businesses declined by 264 basis points and 407 basis points, respectively.

    All round picture
      % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin gain/(decline) basis points
    Consumer Care 84% 20% 7% 23% -263.69
    Foods 12% 28% 29% 15% -406.59
    Retail 1% 83% 30% -18%  
    Others 4% 102% -30% 3% -559.73

  • Notwithstanding a slower 3.3% growth in operating profit, Dabur has been able to post a robust 16% rise in earnings aided by a fall in interest and tax expenses. The tax incidence fell to 18% from 22% in the year-ago quarter. Even the depreciation outgo remained almost flat during the quarter.

What to expect?
Dabur crossed the USD $ 1 bn mark in 2012. This was achieved through a combination of acquisitions, price increases and volume growth. However the company's profitability has been under cloud on account of high commodity inflation. The compression in margins has been across the board in both consumer care and food businesses. This is the reason for a poor weightage being assigned to the stock by markets. At a price of Rs. 106, the stock is trading at 15 times our estimated FY14 earnings.

Unless Dabur's profit margins that have been under pressure in the past two years revive, we would advise investors to stay away from the stock.

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