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Dabur: Robust rise in offtake continues - Views on News from Equitymaster
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Dabur: Robust rise in offtake continues
Jul 25, 2013

Dabur India Limited has announced its first quarter results for financial year 2013-2014 (1QFY14). The company has reported a 13% YoY and 24.5% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • On the back of 13.2% growth in the domestic business and 17.4% rise in international operations, overall sales of Dabur increased by 12.9%.
  • Operating margin remained flat as savings in raw material costs have been offset by steep rise in other expenditure.
  • Net profit grew by a steep 24.5% aided by lower interest costs and sharp rise in other income earned during the quarter.

Consolidated picture
(Rs m) 1QFY13 1QFY14 % Change
Revenues 14,713 16,565 12.6%
Expenditure 12,576 14,156 12.6%
Operating profit (EBDITA) 2,137 2,409 12.7%
EBDITA margin (%) 14.5% 14.5% 0.0%
Other income 263 366 38.9%
Interest 213 133 -37.4%
Depreciation 267 287 7.5%
Profit before tax 1,921 2,355 22.6%
Tax 378 484 28.2%
Minority Interest 2 10  
Extraordinary Items (47)    
Profit after tax/(loss) 1,494 1,860 24.5%
Net profit margin (%) 10.2% 11.2%  
No. of shares (m)   1,744  
Diluted earnings per share (Rs)*   4.6  
Price to earnings ratio (x)*   37.9  
* On a trailing 12-months basis
What has driven performance in 1QFY14?

  • Dabur continued to grow its topline in double-digits led by 13.2% growth in the domestic FMCG business and 17.4% rise in international business. Growth in the domestic FMCG business was driven by strong volume growth of 9%. Barring oral care & health supplements, all the consumer care categories of the domestic business reported double-digit growth. The largest category, hair care grew by 11.8% led by 22.8% growth in shampoos and 10% rise in hair oils. Home Care grew by 25.8% driven by strong growth in Odonil and Odomos. Digestives grew by 15.1% with strong growth across brands. Even skin care and OTC & Ethical categories clocked double-digit growth. The oral care portfolio saw toothpastes registering a strong 14% growth but falling sales of toothpowders pulled down the overall growth. Even health supplements category remained sluggish due to pressure on Glucose sales as a result of the early onset of monsoons. Dabur's food business comprising of juices grew by 18.7% and crossed the Rs 2 bn mark during the quarter. The company launched Supa Fruits range and Drinking Yogurts. The new fruit juice facility set up in Sri Lanka commenced production in the quarter. Dabur's international business registered organic growth of 18.5%. Its Namaste business is back on the recovery path posting a 16% growth.

    1QFY14 division performance (domestic)
    Segment Growth
    Hair oil 10.00%
    Shampoo 23.00%
    Oral care 8.60%
    Health Supplements 7.50%
    Skin care 12.70%
    Foods 18.70%
    Home care 25.80%
    Digestives 15.10%
    OTC & Ethicals 11.80%

  • Dabur's operating margin remained stagnant as input cost savings from easing commodity prices were offset by a steep rise in other expenditure (both as a proportion of sales). The company's ad spends to sales ratio declined by 0.2% to 15.3%. Among product segments, consumer care saw a 0.3% rise in its operating margin. Margins of the food business continued to be hit by higher price of imported concentrate in the light of a stronger dollar. The EBIT margin of this segment slid by 2.4% during the quarter.

    All round picture
      % contribution to sales Revenuegrowth PBIT growth PBIT margin % PBIT margin gain/(decline)
    basis points
    Consumer Care 81% 14% 16% 21% 26.3
    Foods 15% 18% 15% 13% -242.8
    Retail 1% 27% -63% -14%  
    Others 2% -34% -42% 6% -83.1

  • At the net level, profits surged by 24.5% on the back of 34.5% reduction in interest cost and modest rise in depreciation charges. The company has repaid loan to the tune of $ 13 m during the quarter. Even the other income earned increased by a sharp 38.9% giving a further boost to profits.
What to expect?

At the current price of Rs 173, the stock is trading at 22 times its FY16 forecasted earnings.

Despite a slowdown witnessed in discretionary categories of Home & Personal Care, Dabur has reported strong growth in most of its product categories. This can partly be attributed to the rollout of Project Double in FY13 that led to increase in direct rural coverage. Dabur derives more than 40% of its domestic sales from rural India. As per the company, its rural sales are growing 1.5 times faster than its urban sales. Going ahead, rural demand is expected to remain robust on the back of good early monsoon and direct cash transfer initiatives by the government. The company's domestic margins are expected to improve on the back of price hikes and better product-mix. On the international front, the company expects a revival in margins of Namaste business by the end of the year.

We had given a BUY on the stock on 20th July 2012. The stock has already met our target price on 10th May 2013. As the current valuations have already factored in all upsides, we would recommend a SELL on the stock at current price levels.

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