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Dabur: FY14 ends on a strong note - Views on News from Equitymaster

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Dabur: FY14 ends on a strong note

May 28, 2014

Dabur India Limited has announced its fourth quarter results for financial year 2013-2014 (4QFY14). The company has reported a 15.5% YoY and 17% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Dabur posted 15.5% growth in consolidated topline in 4QFY14 driven by volume growth of 9.4%. For FY14, consolidated revenues were up by 15% on a 10.5% growth in offtake.
  • The company managed to maintain its operating margin in 4QFY14 backed by controlled other expenditure. For FY14, the company clocked a 0.3% expansion in operating margin aided by
  • rationalization in input costs and other expenses in relation to sales.
  • Net profit grew by a faster 17% in 4QFY14 due to lower interest outgo. For FY14, net profits grew by 19.7% on a 8% cut in interest costs.
  • The company has declared a final dividend of Re 1 per share of face value of rupee one taking the total dividend for the year to Rs 1.75 per share.

Consolidated picture
(Rsm) 4mFY13 4mFY14 % Change FY13 FY14 % Change
Revenues 15,366 17,744 15.5% 61,691 70,944 15.0%
Expenditure 12,802 14,790 15.5% 51,813 59380 14.6%
Operatingprofit (EBDITA) 2,564 2,954 15.2% 9,878 11,564 17.1%
EBDITA margin (%) 16.7% 16.7% 0.0% 16.0% 16.3% 0.3%
Other income  320 383 19.9% 1,089 1,315 20.8%
Interest  150 137 -8.6%  589  542 -8.1%
Depreciation  207 263 27.1%  847  975 15.1%
Profit before tax 2,527 2,938 16.2% 9,530 11,363 19.2%
Tax  507 582 14.9% 1,826 2,191 20.0%
Minority Interest  15 2    24  25  
Extraordinary Items  -  (1)   (46) (7)  
Profit after tax/(loss) 2,006 2,353 17.3% 7,634 9,139 19.7%
Net profit margin (%) 13.1% 13.3%   12.4% 12.9%  
No. of shares (m)          1,744  
Dilutedearnings per share (Rs)*         5.2  
Priceto earnings ratio (x)*         34.7  
* On a trailing 12-months basis

What has driven performance in 4QFY14?
  • Dabur registered a 15.5% growth in consolidated turnover led by 19.7% growth in international business and 14% increase in domestic operations. All product segments in the domestic consumer care, except hair care, saw double-digit growth during the quarter. Digestives and health supplements continued to remain the fastest growing segments, each clocking a growth of over 16%. Health Supplements grew by a robust 18% driven by chywanprash and honey. Even digestives grew by 23% on a strong performance by Hajmola franchise. OTC & ethicals posted 11% growth during the quarter. Another segment, oral care grew by a robust 17% driven by 21% growth in toothpastes particularly Dabur Red Toothpaste.

  • Hair care, the largest segment in consumer care, remained adversely impacted by sluggish growth in hair oils and saw a 6% growth. The skin care segment reported a relatively better growth of 10% on double-digit growths in Gulabari and Fem bleaches. The home care segment grew by 13% on double-digit growth in Odonil but Odomos sales were affected due to low institutional sales. Dabur's food business comprising of juices and Hommade culinary products grew by a robust 21% during the quarter aided by double-digit growth in Real juices portfolio. Double-digit growth in markets such as GCC, Egypt, Levant markets and Africa coupled with growing presence of Namaste in non-US markets led to a 20% jump in Dabur's international business.

    4QFY14 division performance (domestic)
    Segment Growth
    Haircare 6%
    Oralcare 17%
    HealthSupplements 18%
    Skincare 10%
    Foods 21%
    Homecare 13%
    Digestives 23%
    OTC& Ethicals 11%

  • Dabur's operating margin remained static at 16.7% as savings in other expenses have been offset by higher ad-spends and staff costs (all as a proportion of sales). As a proportion of sales, other expenses have fallen by 0.8% whereas ad-spends and staff costs have grown by 0.4% and 0.3%, respectively during the quarter. Segment wise, both consumer care and foods reported erosion in their EBIT margins during the quarter.

    All round picture
      % contribution    Revenue PBIT PBIT margin PBIT margin  gain/(decline)
    ConsumerCare 84% 15% 11% 22% -83.5
    Foods 13% 20% 33% 13% -260.2
    Retail 1% 20% 1% -7%  
    Others 2% 0% 3% 6% 19.8

  • Net profits grew by a relatively faster 17% on a 15% rise in operating profit. This was on account of 20% increase in other income earned and 8.6% reduction in interest charges.
What to expect?
At the current price of Rs 181, the stock is trading at 23 times its FY16 forecasted earnings.

Dabur India was able to tide over slowdown in discretionary spending through its widened distribution reach in rural India arising from Project Double. Going ahead, the company wants to sharpen its focus on the urban-centric healthcare segment through Project Core which is essentially ‘Chemist Outlet and Range expansion'. In the past 3-4 months, the coverage in the chemist channel has been increased from 33,000 to 52,000 outlets in the top 150 towns. The coverage would be raised further to 75,000 outlets. Project Core has a dedicated team of people who visit chemists and perform the task of explaining the product profile, booking orders and delivering. Till now 350 additional resources have been recruited in the front-end under the Project Core. This channel provides doctor advocacy for new products which will benefit the OTC and ethicals segment immensely. The company expects its healthcare business to grow by 40% over the next 4 years. Apart from this, the company would be investing Rs 1 bn in the food business in FY15. Therefore, greater emphasis on high margin business segments such as healthcare and food businesses is expected to improve its profitability.

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. As current valuations still do not provide sufficient level of upsides, we would recommend a SELL on the stock at current price levels.

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