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Dabur: Improving outlook - Views on News from Equitymaster
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  • Jun 4, 2001

    Dabur: Improving outlook

    Dabur India Limited FY01 results seem satisfactory against the backdrop of a slowdown in the FMCG sector. The company has recorded a 12% growth in net turnover during this period. Its bottomline has surged 39% (excluding extraordinary items) in FY01.

    (Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
    Net Sales 2,611 3,039 16.4% 10,426 11,665 11.9%
    Other Income 57 74 30.4% 132 159 20.7%
    Expenditure 2,381 2,703 13.5% 9,491 10,445 10.0%
    Operating Profit (EBDIT) 230 336 46.1% 935 1,220 30.5%
    Operating Profit Margin (%) 8.8% 11.1%   9.0% 10.5%  
    Interest 38 49 27.6% 251 297 18.1%
    Depreciation 61 62 0.8% 213 225 5.4%
    Profit before Tax 188 298 58.8% 603 858 42.4%
    Tax 9 26 196.5% 39 73 87.8%
    Extraordinary income 0 0   210 -6  
    Profit after Tax 179 272 52.2% 774 779 0.7%
    Net profit margin (%) 6.9% 9.0%   7.4% 6.7%  
    Effective tax rate (%) 4.6% 8.6%   6.4% 8.5%  
    No. of Shares (eoy) (m) 28.5 285.2   28.5 285.2  
    Diluted earnings per share       27.1 2.7  
    P/E ratio (excl. extraordinary items)         26.1  

    *4QFY01 results have been extrapolated based on the previous three quarter results.

    Dabur is a 115 year old FMCG ‘ayurvedic’ company operating in the niche (natural/ayurvedic) segment with a portfolio of over 500 products. Its core competence lies in its ability to conceive, develop and market products based on herbs and other natural resources. Its products include leading brands like Dabur Chyawanprash, Hajmola, Pudin Hara, Lal Dant Manjan, Amla, Vatika hair oils, Dabur Honey and Real fruit juices.

    Dabur's niche product profile is probably one of the reasons that its turnover growth has been more or less immune to the slowdown in the FMCG sector. If however, one does consider the extraordinary income which the company generated last year (FY00), then the net profit in FY01 shows a miniscule 0.7% growth.

    What looks good in the company is its improving operating margins. Dabur's operating margins improved by 150 basis points in FY01. This helped the company in improving its net profit margins (excluding extraordinary items) despite a significant jump in its interest costs and effective tax rate. A 21% growth in other income was also responsible for the net margin jump.

    Based on our calculations, Dabur's 4QFY01 numbers do look favourable. Infact, Dabur's 4QFY01 seems to be its best quarter in FY01. This bodes well for the company.

    At the current price of Rs 73 the stock trades at a P/E multiple of 26 times its FY01 earnings, which is on the higher side of the FMCG sector valuations. However, the stock gets slightly lower valuations than other FMCG majors like HLL, Britannia and Cadbury because of the company's history of diversifying into businesses unrelated to its core competence.



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