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Dabur: Mixed performance - Views on News from Equitymaster

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Dabur: Mixed performance
Jul 29, 2008

Performance summary
  • Reports a consolidated topline growth of 16% YoY, led by 13% YoY growth in the consumer care segment, 25% YoY growth and 15% YoY growth in the consumer health care and foods segments respectively
  • The consolidated margins decline by 80 basis points. Material costs were higher by 0.8% as a percent of sales.
  • The bottomline grows by 13% YoY in 1QFY08. Lower margins and higher effective tax rates restrict the growth.
  • The standalone sales are up 12.8% YoY, while profits are up 25% YoY.


Consolidated financials
Rs(m) 1QFY08 1QFY09 (%) Change
Net sales 5,208 6,040 16.0%
Expenditure 4,416 5,169 17.1%
Operating profit (EBDITA) 792 871 9.9%
EBDITA margin (%) 15.2% 14.4%  
Other income 77 120 55.3%
Interest 47 40 -13.7%
Depreciation 102 117 14.8%
Profit before tax 721 834 15.6%
Minority interest 1 (1) -164.3%
Tax 100 127 26.5%
Profit after tax/(loss) 622 706 13.4%
Net profit margin (%) 11.9% 11.7%  
No. of shares (m) 863.9 865.0  
Diluted earnings per share (Rs)*   3.9  
Price to earnings ratio (x)   23.1  

What has driven performance in 1QFY09?
  • Dabur reported a consolidated topline growth of 16% YoY led by 13% YoY growth in the consumer care segment (CCD), 25% YoY growth and 15% YoY growth in the consumer health care (CHD) and foods segments respectively. Dabur's International Business continued to grow at a rapid pace with a 39.5% YoY growth. The retail venture reported 11 m sales in the current quarter.

    Segment Revenue

      1QFY08 1QFY09 (%) Change
    Consumer Care segment 4,141 4,694 13.3%
    % of total revenue 78.1% 76.6%  
    Consumer Health segment 321 401 24.9%
    % of total revenue 6.1% 6.6%  
    Food 727 839 15.4%
    % of total revenue 13.7% 13.7%  
    Retail Business - 11  
    % of total revenue 0.0% 0.2%  
    Others 115 180 56.8%
    % of total revenue 2.2% 2.9%  
           
    Total 5,304 6,124 15.5%

  • The standalone sales were up 12.8% YoY. Hair oil, shampoo, health supplements and foods segments witnessed strong growth momentum. However, skin and baby care, digestives and home care performance was muted. Skin care category witnessed a de-growth of –5.3% during 1QFY09 led by reduction in sale of ‘Vatika’ soap. The category recorded growth of 12.5% YoY during the quarter after excluding ‘Vatika’ soap. In the home care, ‘Odomos’ brand remained under pressure and the company is taking steps to revive it. Consumer division witnessed a turnaround with OTC portfolio growing by 32.8% YoY and the ‘Ethical’ portfolio reporting 14.7% YoY growth. It also launched 3 new products during the quarter.

    Division performance

    Segment Growth Key performers
    Hair oil 12.2% Dabur Amla (13.9%), Anmol Coconut (32.8%) Anmol Mustard (14.2%), Vatika (-8%)
    Shampoo 26.3% Vatika (Smooth & Silky) (18.8%)
    Health Supplements 19.1% Chyawanprash (14.9% YoY), Glucose (29.2% YoY) and Dabur Honey (13.8% YoY)
    Baby and Skin care -5.3% Gulabari (16.1%), Lal Tail (17.3%)
    Oral care 5.5% Red toothpaste (17.5%)
    Foods 15.2% Real Fruit juice(15.9%), no juice portfolio (33.6%)

  • Regarding the overseas regions, GCC region witnessed a 52% YoY growth, while Dabur Egypt grew by a robust 111% YoY. Sales in African markets more than doubled during 1QFY09. In the retail arena, Dabur has 7 stores and plans to roll out 5 to 6 more this year.

  • The consolidated margins declined by 80 basis points, while the standalone margins were higher by a similar percent. Material costs were higher by 0.8% as a percent of sales. Efficient management of input cost & price increases (4% to 5% across all brands) have been able to reduce greater impact of inflation. Even labour and ad spends grew by 19% YoY and 18% YoY respectively.

  • On the standalone front, lower ad spends and raw material prices (as a percent of sales) have aided the growth. On the segmental PBIT, while double-digit growth was witnessed across all the segments, the margins of the consumer care were lower by 0.6% at 24.3% and that of consumer health care were lower by 2.6% at 24.9%. On the retail front, the company continues to face losses, excluding which the PBIT has grown by 10.8% YoY.

  • Inspite of higher other income and lower interest costs, the profits grew at a slower pace than the topline. Lower margins and higher effective tax rates restricted the growth. Standalone bottomline grew by 25% YoY led by better margins and higher other income

What to expect?
At the current price of Rs 91, the stock is trading at a price to earnings multiple of 15.7 times our FY11 estimates. The company witnessed mixed performance across its segments. While the key segments continued to do well, the company is taking steps to revive and relaunch the key brands in the under performing segments. The turnaround of the CHD division is also a positive. Its strong presence in less penetrated and high growth categories, ability to consistently launch new products and variants and its wide geographical reach makes it a strong play. We have a positive view on the stock.

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