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Dabur: Sluggish topline, improved OPM - Views on News from Equitymaster
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  • Oct 30, 2002

    Dabur: Sluggish topline, improved OPM

    Dabur India, the ayurvedic products major, has reported a marginal 2% topline growth during the September quarter 2002. The company had reported a 7% topline growth during the June quarter. Cost efficiencies led to a 160 basis point expansion in operating margins, thus helping the company report nearly 24% growth in 2QFY03 net profit.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Net Sales 3,134 3,197 2.0% 5,623 5,858 4.2%
    Other Income 45 11 -76.4% 61 32 -48.5%
    Expenditure 2,778 2,782 0.1% 5,082 5,219 2.7%
    Operating Profit (EBDIT) 356 416 16.8% 541 638 18.1%
    Operating Profit Margin (%) 11.4% 13.0%   9.6% 10.9%  
    Interest 67 30 -55.1% 120 87 -27.2%
    Depreciation 51 53 3.8% 103 105 1.5%
    Profit before Tax 284 344 21.2% 379 478 26.1%
    Tax 39 41 4.4% 46 60 29.5%
    Profit after Tax 245 303 23.9% 333 418 25.7%
    Net profit margin (%) 7.8% 9.5%   5.9% 7.1%  
    Effective tax rate (%) 13.7% 11.8%   12.2% 12.5%  
    No. of Shares (eoy) (m) 285.2 285.6   285.2 285.6  
    Diluted earnings per share 3.4 4.2   2.3 2.9  
    P/E ratio   10.6     15.4  

    The company's raw material costs, both in September quarter and 1HFY03, declined YoY, but cost of goods purchased saw an increase. This reflects the increasing trend of outsourcing adopted by the company. A lot of FMCG companies outsource production finding them more cost efficient as compared to own plant manufacture. Though Dabur's depreciation provisioning remained more or less steady at last year's levels, its interest cost during 2QFY03 saw a major decline (down 55% YoY). This restructuring of debt also led to higher bottomline growth.

    Cost break-up
    Costs as a % of sales 2QFY02 2QFY03 1HFY02 1HFY03
    Raw material cost 13.5% 8.8% 16.9% 12.8%
    Staff cost 6.4% 6.4% 6.7% 6.8%
    Finished goods purchased 28.7% 30.7% 27.6% 29.0%
    Advertising cost 12.2% 13.0% 12.7% 12.9%
    Others 27.8% 28.1% 26.5% 27.7%
    Total Expenditure 88.6% 87.0% 90.4% 89.1%

    Dabur has restructured its pharmaceutical business with effect from July 01, 2002. With this one hopes that the management will be able to focus more on growing its FMCG folio. The dwindling topline growth continues to be a concern, though to be fair to the company, Dabur's growth is quite in line with the FMCG industry's current plight.

    The stock trades at Rs 45, a P/E of 15.4x annualised 1HFY03 earnings. The company's performance has been encouraging so far in FY03 and we see no reason why this should not continue for the rest of the fiscal year. But despite this, we are skeptical of the stock owing to the promoter's diversified focus.



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