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Dabur: Hale and Hearty!
Nov 1, 2006

Performance summary
Ayurvedic major, Dabur announced impressive results for the second quarter and half year ending September 2006. The topline has witnessed a respectable growth of 20.7% YoY, while the bottomline has grown by 22% YoY mainly due to higher other income. However, during the quarter, margins remained unchanged. The board has recommended a bonus issue of 1: 2 and an interim dividend of Re 1 per share (dividend yield of 0.7%).

Consolidated performance
Rs(m) 2QFY06 2QFY07 (%) Change 1HFY06 1HFY07 (%) Change
Net sales 4,675 5,641 20.7% 8,822 10,396 17.8%
Expenditure 3,870 4,669 20.6% 7,525 8,785 16.7%
Operating profit (EBDITA) 805 973 20.8% 1,297 1,612 24.2%
EBDITA margin (%) 17.2% 17.2%   14.7% 15.5% 1.50
Other income 38 62 63.7% 56 115 105.2%
Interest 47 55 17.6% 87 96 10.1%
Depreciation 84 106 26.0% 160 203 27.0%
Profit before tax 713 874 22.6% 1,107 1,428 29.0%
Extraordinary item   41     41  
Minority interest 16.9 -5.6 - 21 2.9 -86.2%
Tax 85 123.4 44.5% 135 204 51.1%
Profit after tax/(loss) 644 786 22.0% 993 1,268 27.7%
Net profit margin (%) 13.8% 13.9%   11.3% 12.2%  
No. of shares (m) 573.7 573.7   573.7 573.7  
Diluted earnings per share (Rs)*         4.2  
Price to earnings ratio (x)*         36.3  
* 12 month trailing earnings

What is the company’s business?
Dabur is India’s fourth largest FMCG company with interests in health care, personal care and food products. The company’s name is generic to ‘ayurvedic’ products in India, and it has big brands like Vatika (hair oils), Chyawanprash, Hajmola, Amla oil and Lal Dant Manjan (oral care) under its stable. In FY04, Dabur approved the demerger of its FMCG and pharma businesses, into two separate listed entities. The move was aimed at bringing in more focus to both businesses, as well as to unlock value for shareholders. Further, the company acquired Balsara’s business in FY05 for a consideration of Rs 1.4 bn.

What has driven performance in 2QFY07?
Revenue growth momentum continues: Dabur has reported a strong 20.7% YoY growth in the consolidated topline for 2QFY07. This has been achieved by all round performance from all the business segments of the company. The details are discussed hereunder:

Standalone
Rs(m) 2QFY06 2QFY07 (%) Change 1HFY06 1HFY07 (%) Change
Net sales 3,329 4,369 31.3% 6,322 8,246 30.4%
Expenditure 2,669 3,567 33.7% 5,285 6,878 30.2%
Operating profit (EBDITA) 659 801 21.6% 1,037 1,367 31.9%
EBDITA margin (%) 19.8% 18.3%   16.4% 16.6%  
Other income 1 36 3888.9% 22 90 308.9%
Interest 17 10 -39.9% 33 26 -21.9%
Depreciation 54 73 36.2% 105 141 34.8%
Profit before tax 590 754 27.9% 921 1,290 40.0%
Tax 69 107 54.6% 112 184.6 64.4%
Extraordinary item   41     41  
Profit after tax/(loss) 521 688 32.2% 809 1,147 41.7%
Net profit margin (%) 15.6% 15.8%   12.8% 13.9%  

Standalone performance: On the standalone basis Dabur India’s topline grew by 31.3% YoY for 2QFY07. This was led by stellar growth performance across its business segments.

Consumer Care division: This division grew by 17% YoY for the quarter. Hair care category posted a strong growth of 11.5% YoY while, hair oils grew by 9.1% YoY. Vatika shampoos grew by 26% YoY with good performance of both the variants.

The Health Supplements category continued its strong performance with a growth of 26.2% YoY The company’s key products like Chyawanprash (up 39.8% YoY), Glucose (23% YoY) and Honey (up 13.4%YoY) too fuelled the growth.

A 24% YoY growth was witnessed in its oral care segment. With high growth across its brands the toothpaste category grew at 33% YoY. Market share of Dabur toothpaste’s increased from 7.1% in FY06 to 7.6% in this quarter (As per AC Nielsen Retail Audit report Sep 06). Red toothpowder also recorded a growth of 17.6% YoY as a result of focus on local market activation and consumer education.

With Hajmola tablets growing at 7% YoY and Hajmola candy witnessing a growth of 10.1% YoY the digestive category posted growth of 3% YoY for this quarter. Baby and Skin care sales were flat in this quarter. Dabur’s Home care segment recorded a growth of 21%YoY led by Odonil’s and Odomos’ 27% and 26% YoY growth respectively.

Consumer Health Division: This division recorded a growth of 21.8% YoY and 12.5% YoY for the half-year period. This division gained momentum in this quarter (in the first quarter of FY07, the sales showed marginal growth as they were impacted by new ERP implementation) with Honitus cough syrup & lozenges continuing their strong performance leading to 116% YoY growth in Honitus brand.

Segment Revenue
(Rs m) 2QFY06 2QFY07 (%) Change 1HFY06 1HFY07 (%) Change
Consumer care 3,688 4,315 17.0% 6,993 8,121 16.1%
% of total revenue 78.9% 76.5%   79.3% 78.1%  
Consumer health 384 468 21.8% 705 793 12.5%
% of total revenue 8.2% 8.3%   8.0% 7.6%  
Foods 501 722 44.0% 955 1,269 32.9%
% of total revenue 10.7% 12.8%   10.8% 12.2%  
Others 102 137 34.0% 169 214 26.3%
% of total revenue 2.2% 2.4%   1.9% 2.1%  
Total 4,675 5,641   8,822 10,396  

The Foods and International Business division (IBD) was the party to the growth too. The Foods division posted growth in sales of 44% YoY in 2QFY07 due to the strong performance of Real fruit juice. IBD recorded a growth of 31.4% YoY with strong performance across all focus markets. GCC countries & Egypt posted growth of 19% YoY and 56.5% YoY respectively. While Nigeria sales grew by 29.5% YoY, sales in UK and Bangladesh were flat.

Operations in Pakistan took off with the sales growing by almost 100% over the corresponding period last year. The company had also undertaken a price hike in the last quarter in certain products like toothpaste, foods, honey and Chawanprash. Of the total growth, 2.4% was due to the price hike. Going forward, the company expects the growth momentum to continue.

Consolidated cost break-up
As a % of net sales 2QFY06 2QFY07 1HFY06 1HFY07
Total Cost of goods 41.5% 43.5% 42.3% 42.3%
Staff Cost 7.1% 7.8% 7.3% 8.0%
Advertising 11.5% 9.3% 12.0% 11.3%
Other Expenditure 22.7% 22.1% 23.7% 22.8%

Stable margins: The margins for the quarter remain unchanged at 17.2%. Though there was pressure on the input prices, the company increased the product prices to offset the hike. Consumer care division and foods division reported higher margins, but the decline in the consumer health care margins affected the overall margins. Though consumer care continues to be the main contributor to the PBIT, food division’s contribution increased to 7.5%.

PBIT 2QFY06 2QFY07
Consumer care 906 1,114
% of total PBIT 84.0% 83.7%
Consumer health 117 116
% of total PBIT 10.8% 8.7%
Foods 53 99
% of total PBIT 4.9% 7.5%
Others 2 3
% of total PBIT 0.2% 0.2%

Bottomline picture: Strong topline, stable margins and higher operating income resulted in the 22% YoY growth in the bottomline. This includes extraordinary income to the tune of Rs 41 m (sale of Daburgram unit). Excluding this, the profits grew by 15.6% YoY.

What to expect?
At the current price of Rs 153, the stock is trading at 36.3 times its 12-months trailing earnings. While Dabur is not too worried about the margins, its aim is to focus on driving the topline. The company is also looking at acquisitions, for which it has the necessary funds. Going forward, we expect the company’s growth prospects to look healthy. However, valuations are a cause for concern.

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