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Dabur: Healthy start! - Views on News from Equitymaster

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Dabur: Healthy start!

Jul 23, 2007

Performance summary
  • Consolidated topline grows 20% YoY, while standalone topline grows by 14.9% YoY.

  • Consolidated operating margins improve from 13.4 % in 1QFY07 to 13.9% in 1QFY08 on the back of decline in other expenses (as a % of sales).

  • Higher other income and lower tax rates lead to net profit growth of 29% YoY on a consolidated basis.

Rs(m) 1QFY07 1QFY08 (%) Change
Net sales 4,755 5,709 20.1%
Expenditure 4,116 4,917 19.5%
Operating profit (EBDITA) 639 792 23.9%
EBDITA margin (%) 13.4% 13.9%  
Other income 53 77 46.0%
Interest 41 47 14.2%
Depreciation 97 102 4.6%
Profit before tax 554 721 30.1%
Minority interest 9 1 -83.5%
Tax 80 100 24.6%
Profit after tax/(loss) 482 622 29.0%
Net profit margin (%) 10.1% 10.9%  
No. of shares (m) 573.7 863.9  
Diluted earnings per share (Rs)*   3.4  
Price to earnings ratio (x)   29.1  

What is the company’s business?
Dabur is India’s fourth largest FMCG company with interests in health care, personal care and food products. The company’s name is generic to ‘ayurvedic’ products in India, and it has big brands like Vatika (hair oils), Chyawanprash, Hajmola, Amla oil and Lal Dant Manjan (oral care) under its stable. In FY04, Dabur approved the demerger of its FMCG and pharma businesses, into two separate listed entities. The move was aimed at bringing in more focus to both businesses, as well as to unlock value for shareholders. Further, the company acquired Balsara’s business in FY05 for a consideration of Rs 1.4 bn.

What has driven performance in 1QFY08?
Consolidated view: The company posted a strong topline growth of 20% YoY in 1QFY07. The international business, foods, oral care, health supplements and baby & skin care were the key drivers of growth during the quarter, growing at double-digit rates. The company was also able to improve its competitiveness in the market place.

Rs(m) 1QFY07 1QFY08 (%) Change
Net sales 3,877 4,453 14.9%
Expenditure 3,311 3,797 14.7%
Operating profit (EBDITA) 566 656 16.0%
EBDITA margin (%) 14.6% 14.7%  
Other income 54 57 6.7%
Interest 16 14 -12.2%
Depreciation 68 70 3.7%
Profit before tax 536 630 17.4%
Tax 78 88.9 14.3%
Profit after tax/(loss) 458 541 17.9%
Net profit margin (%) 11.8% 12.1%  

On a standalone basis, the topline has grown by 15% YoY. Its share to the total sales has fallen from 82% in 1QFY07 to 78% in this quarter. Dabur has reported strong double-digit growth across key FMCG categories. Let us focus on the consumer care segment first, which consists of oral care, hair care, health supplements, digestives, baby and skin care and home care.

Its oral care category (growth of 15% YoY) continued strong performance with its toothpaste brands growing by nearly 27% YoY. Dabur toothpastes continued to outperform the category, reporting 30% growth as compared to 8% category growth as per A C Nielsen.

The health supplements category also continued its robust performance with a 30% YoY growth during the quarter. Chyawanprash (16% YoY), Glucose (50% YoY) and Honey (26% YoY) led to the healthy performance of this segment. The hair care segment grew by 8.4% YoY aided by Amla hair oil which posted a 9.4% YoY growth and Anmol Coconut hair oil which grew by 19% YoY. A 24% YoY growth in the Vatika range of shampoos further boosted the growth.

Baby and skin care range reported a strong 26% YoY growth in this quarter. The digestive division grew by 13.7% YoY backed by 22% growth in Pudina Hara and 10% YoY growth in Hajmola. 19% YoY and 48% YoY growth in Odomos and Odonil brands led to a strong 24% YoY rise in the home care segment. Overall, the consumer care segment grew by 18.7% YoY for the quarter. The company is planning innovations and renovations in packaging. It is also introducing new products particularly in the health supplement segments. Dabur is also planning to exit low margin products and target more on high margin products which would improve margins.

The consumer health care division grew by 1.7% YoY in this quarter with its share falling to 5.8% (6.8% in 1QFY07) of the total revenues. Honitus throat drops and Shankhpushpi and Nature Care grew in excess of 25% YoY. The performance was sluggish for the quarter as certain products did not perform well. However the company is coming out with a slew of new products and expects double-digit growth for FY08.

Segment Revenue
  1QFY07 1QFY08 (%) Change
Consumer Care segment 3,807 4,517 18.7%
% of total revenue 80.1% 79.1%  
Consumer Health segment 325 330 1.7%
% of total revenue 6.8% 5.8%  
Food 547 759 38.7%
% of total revenue 11.5% 13.3%  
Others 77 103 34.3%
% of total revenue 1.6% 1.8%  
Total 4,755 5,709 20.1%

A 40% YoY growth in the Real fruit juice led to a 38.7% YoY growth in the Foods business. Its share increased from 11.5% to 13.3% in the period under consideration. The company’s Real Twist, which was launched in 4QFY07, also did well and registered sales of Rs 38 m for the quarter.

Consolidated cost break-up
As a % of net sales 1QFY07 1QFY08
Total Cost of goods 41.0% 42.7%
Staff Cost 7.7% 7.8%
Advertising 13.0% 13.0%
Other Expenditure 24.9% 22.5%
Its international business also recorded a 54% YoY growth during the period, driven by its businesses in Egypt, Pakistan and the GCC region. Sales in GCC region increased by 60% YoY, while Dabur Egypt grew by 61% YoY. Pakistan too reported robust growth of 130% YoY. The company is planning an entry into new markets in the Middle East & North Africa region, which would aid further growth.

Stable margins: There was an improvement of 50 basis points at the operating margin level for the consolidated entity. Lower other expenses (as a % of sales) led to this improvement. However, higher raw material costs and labour expenses curtailed the margins to some extent. On a standalone basis, the margins remained stable at 14.7% for 1QFY08.

PBIT 1QFY07 1QFY08 (%) Change
Consumer Care segment 846 1,033 22.1%
% of total PBIT 87.6% 85.9%  
Consumer Health segment 84 88 5.1%
% of total PBIT 8.7% 7.3%  
Food 37 71 95.1%
% of total PBIT 3.8% 5.9%  
Others (1) 10  
% of total PBIT -0.1% 0.8%  
Total 965 1,202 24.5%

Bottomline growth: On a consolidated basis, the net profits grew by 29% YoY aided by higher other income and lower tax rates. The share of the standalone profits to the total profits fell from 95% in 1QFY07 to 86.9% in this quarter. Though on a smaller base, the food segment reported a healthy 95% YoY growth in the PBIT. Following the food division, consumer care segment reported a 22% YoY growth in the PBIT.

What to expect?
At the current price of Rs 100, the stock is trading at a price to earnings multiple of 29.1 times its trailing 12 months earnings, which we believe is expensive. The company has maintained its market share, which is positive. It is also introducing new variants and has merged the food division with Dabur India. Dabur Foods is one of the fastest growing segment and the merger would help the company expand more effectively. Also, it is venturing into newer regions, thereby spreading its wings across the globe. Though we are positive on the growth of the company, valuations are a concern.

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Mar 18, 2019 (Close)