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Dabur: Margins down despite robust growth - Views on News from Equitymaster
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Dabur: Margins down despite robust growth
Aug 2, 2011

Dabur India Limited has announced its first quarter results for financial year 2011-2012 (1QFY12). The company has reported a 31% YoY and 19.6% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated revenues for 1QFY12 increased by a robust 31% YoY backed by robust sales performance of the company's consumer care division (CCD) & consumer healthcare division (CHD) and steep rise in topline of the International Business division (IBD). The IBD includes the recently acquired financials of Hobi Kozmetik of Turkey and Namaste Laboratories of the US.
  • Operating (EBITDA) margins fell by 130 basis points YoY to 14.3% during 1QFY12. A sharp 32% YoY jump in raw material costs led to a muted 20.6% YOY rise in operating profit.
  • At the net level, profit grew by slower 19.6% YoY due to a 3.5 fold jump in interest outgo, partially offset by doubling of other income. The net profit margin was down by 110 basis points YoY during 1QFY12.

Consolidated picture
(Rs m) 1QFY11 1QFY12 % Change
Revenues 9,240 12,125 31.2%
Expenditure 7,806 10,395 33.2%
Operating profit (EBDITA) 1,435 1,731 20.6%
EBDITA margin (%) 15.5% 14.3% -1.3%
Other income 73 151 108.7%
Interest 36 126 253.8%
Depreciation 135 154 14.2%
Profit before tax 1,337 1,602 19.8%
Minority Interest 6 2  
Extraordinary Items - -  
Tax 263 323 22.7%
Profit after tax/(loss) 1,068 1,277 19.6%
Net profit margin (%) 11.6% 10.5% -1.0%
No. of shares (m) 870 1,741  
Diluted earnings per share (Rs)*   3.4  
Price to earnings ratio (x)*   33.4  
*On a trailing 12-months basis

What has driven performance in 1QFY12?
  • Revenue growth of Dabur was led by both volume growth and price hikes. Its mainstay domestic business, forming 69% of sales, was up by 13.7% YoY on a price hike of 6.5% YoY. The growth was led by a 13% rise in the sales of the largest division, CCD. The consumer health business grew by 11.4% during the quarter. CHD being a small SBU, the company will merge it with CCD for better synergies. Dabur's international business was impacted by the slowdown in the exports to Yemen & Middle East but revenue streams from the recent acquisitions led to a 98.9% jump in sales. The key category drivers for overseas growth were shampoos, hair cream and toothpastes. Among regions, Nigeria, Egypt & GCC registered over 25% growth. Political turmoil impacted sales in Yemen, Syria & Libya. All segments reported strong growth in double-digits during the quarter.
  • All round picture
      % contribution to sales Revenue growth PBIT growth PBIT margin (%) PBIT margin gain/(decline) basis points
    Consumer Care 78% 35% 20% 20% -253.1%
    Consumer Health 6% 11% 3% 24% -192.6%
    Foods 13% 19% 7% 16% -171.2%
    Retail 1% 160% 17%    
    Others 2% 51% 78% 2% 26.0%

  • Sales of International Business Division (IBD) posted a 98.9% YoY jump during the quarter mainly due to the additional sales from the acquired brands, with the home-grown brands posting a 12.5% rise.

    CCD & CHD performance
    Segment Growth Key performers
    Hair oil 16.10% Dabur Amla Hair Oil (9.5%), Vatika Hair Oil (41.1%)
    Shampoo -19.20%  
    Oral care 12.70% Toothpastes (14.1%)
    Health Supplements 0.00%  
    Skin care 16.30% Fem(18.6%)
    Foods 31.50% Real Fruit Juice (38.8%)
    Home care 24.90%  
    Digestives and baby care 7.80%  
    Consumer Health Division 11.40% Ethicals (13.8%), OTC (10.1%)

  • Operating (EBITDA) profit for the year increased by 20.6% YoY. The relatively modest growth has come on a steep 30-32% YoY rise in each of the raw material, wages and other expenses. The advertisement outgo was maintained at the year-ago level. The operating margin contracted by 130 basis points to 14.3% during the quarter. The PBIT margin of most segments contracted . Largest segment, CCD reported a contraction of 253 basis points YoY in PBIT margin due to higher price of coconut oil, paraffin & mustard oil. Foods, the second largest segment saw a 171 basis point fall in PBIT margin, mainly due to political uncertainty in Nepal & Yemen export markets.

  • On the back of a twofold jump in other income earned, the fall in net profit margin was capped at 110 basis points YoY to 10.5%. The interest cost surged by 254% during the quarter, reflecting the impact of rising interest rates. The interest incidence ratio, proportion of interest to EBITDA, increased to 7.3% from 2.5% in the year-ago quarter. Depreciation charges increased by 14.2% YOY.

What to expect?

At a price of Rs. 109, the stock is trading at 26.6 times our estimated FY13 earnings. Dabur is witnessing robust sales momentum backed by volumes & price hikes. Barring shampoo & health supplements, where offtake has been poor, most of the other product segments are witnessing brisk growth. Despite price hikes of upto 6.6%, to counter inflation, margins of majority of the segments contracted. Dabur will implement another round of price hikes at the end of September 2011 which is expected to improve margins in the last two quarters of FY12. At current levels, we feel the stock is fairly valued and advise our subscribers to be cautious while investing in this counter.

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