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Dabur: Margins expand on robust offtake

Oct 30, 2013

Dabur India Limited has announced its second quarter results for financial year 2013-2014 (2QFY14). The company has reported a 14.9% YoY and 23.4% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Dabur reported a 14.8% growth in revenues backed by 14.4% rise in domestic FMCG business and 25.8% increase in international operations. For 1HFY14, revenues grew by 13.7%.
  • Operating margin expanded by 1.7% backed controlled rise in input costs and other expenses. For 1HFY14, operating margin improved by 0.8%.
  • Net profit grew by relatively slower 23.4% on account of over 30% jump in interest charges. The net profit was higher by 23.9% during 1HFY14.

Financial performance: A snapshot
(Rs m) 2QFY13 2QFY14 % Change 1HFY13 1HFY14 % Change
Revenues 15,275 17,542 14.8% 29,992 34,107 13.7%
Expenditure 12,674 14,250 12.4% 25,271 28473 12.7%
Operating profit (EBDITA) 2,601 3,292 26.6% 4,721 5,634 19.4%
EBDITA margin (%) 17.0% 18.8% 1.7% 15.7% 16.5% 0.8%
Other income 243 226 -7.1% 468 592 26.6%
Interest 149 200 34.2% 361 333 -7.9%
Depreciation 196 236 20.6% 406 456 12.3%
Profit before tax 2,500 3,083 23.3% 4,421 5,437 23.0%
Tax 464 579 24.6% 842 1,063 26.2%
Minority Interest 13 6   15 16  
Extraordinary Items 1 (1)   (46) (1)  
Profit after tax/(loss) 2,024 2,497 23.4% 3,518 4,358 23.9%
Net profit margin (%) 13.2% 14.2%   11.7% 12.8%  
No. of shares (m)         1,744  
Diluted earnings per share (Rs)*         4.8  
Price to earnings ratio (x)*         37.1  

What has driven performance in 2QFY14?
  • Dabur clocked a growth of 14.8% in topline driven by 11% growth in volumes. Revenue growth was aided by 14.4% increase in the domestic FMCG business and 25.8% surge in the international operations. Majority of the product segments in the domestic consumer care business reported double-digit growth during the quarter. The oral care segment grew by 18.7% led by 16.5% rise in toothpastes primarily contributed by the premium Red & Meswak brands. The health supplements segment grew at 16.8% driven by strong growth in Dabur Honey. The OTC & Ethicals portfolio grew by 11.2% on strong growth in the ethicals portfolio. The Home care segment registered the highest growth of 25.3% riding on robust growth in the Odonil brand. Even the digestives segment reported a 11.9% growth on robust performance of the Hajmola franchise. However, the largest segment hair care grew by a mere 4% due to high base effect and slowdown in hair oil growth after price reduction. . Dabur's food business comprising of juices grew by 22% during the quarter. International business continued to grow at a strong pace on the back of robust growth in MENA and Bangladesh as well as strong recovery in the Namaste business.

    2QFY14 division performance (domestic)
    Segment Growth
    Hair care 4.00%
    Oral care 18.70%
    Health Supplements 16.80%
    Skin care 17.40%
    Foods 22.00%
    Home care 25.30%
    Digestives 11.90%
    OTC & Ethicals 11.20%

  • The company has managed to register a 1.7% expansion in operating margin on benign input cost environment in the international market as well as 4% price-hike taken in the domestic markets. Consequently, raw material-to-sales ratio fell by 3.2% during the quarter. Even other expense-to-sales ratio was down by 0.3%. These cost savings more than offset the over 20% jump in ad-spends and staff costs for the quarter. Among product segments, consumer care saw a 1.9% rise in its EBIT margin. However, the EBIT margin of the food segment contracted by 2.6% during the quarter as a strong dollar inflated the cost on imported concentrate.

    All round picture
      % contribution   to sales Revenuegrowth PBITgrowth PBIT margin (%) PBIT margin gain/
    (decline) basis points
    Consumer Care 86% 18% 28% 25% 193.4
    Foods 12% 16% -2% 16% -257.8
    Retail 1% 17% -53% -18%  
    Others 2% -52% -64% 9% -314.5

  • Net profits grew by a relatively slower 23.4% on a 26.6% rise in operating profit. This was on account of over 30% jump in interest costs on account of higher hedging costs. Even other income was lower by 7% due to loss of Rs 90 m on the sale of investments in mutual fund unit that have now been parked in fixed securities.
What to expect?
At the current price of Rs 179, the stock is trading at 23 times its FY16 forecasted earnings.

Dabur has been able to report robust volume growth despite slowdown in discretionary spending. Majority of its product segments have been growing at a robust pace. Even its profitability has risen significantly on the back of easing input costs. Going ahead, the company will continue to reap benefits from its enhanced rural reach and buoyant rural demand. Even on the international front the company is expected to benefit from the revival in the Namaste business margins.

We had given a BUY on the stock on 20th July 2012. The stock met our target price on 10th May 2013 after which we had given a SELL. As the current valuations do not provide adequate margin of safety, we would recommend a SELL on the stock at current price levels.

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