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Dabur: All round growth - Views on News from Equitymaster

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Dabur: All round growth

Nov 3, 2008

Performance summary
  • Consolidated topline grows by 18.4% YoY during 2QFY09; 17.4% YoY during 1HFY09.
  • Consolidated margins decline by 1.7% YoY during 2QFY09 due to higher input and operating costs.
  • Inspite of higher other income (particularly on liquid investments) and lower interest costs, the consolidated profits grow at a slower pace (11.6% YoY during 2QFY09) than the topline.
  • The standalone sales are up 14% YoY, while profits are up 18% YoY during 2QFY09.

Consolidated financials
Rs(m) 2QFY08 2QFY09 (%) Change 1HFY08 1HFY09 (%) Change
Net sales 5,905 6,993 18.4% 11,166 13,105 17.4%
Expenditure 4,682 5,664 21.0% 9,097 10,833 19.1%
Operating profit (EBDITA) 1,223 1,329 8.6% 2,069 2,272 9.8%
EBDITA margin (%) 20.7% 19.0% 18.5% 17.3%
Other income 13 64 396.9% 37 112 204.6%
Interest 42 40 -6.8% 89 80 -10.4%
Depreciation 98 123 26.5% 199 240 20.5%
Profit before tax 1,096 1,230 12.2% 1,817 2,064 13.6%
Minority interest 8 4 -50.6% 10 3 -66.0%
Tax 139 156 12.5% 239 283 18.4%
Profit after tax/(loss) 966 1,078 11.6% 1,588 1,784 12.4%
Net profit margin (%) 16.4% 15.4% 14.2% 13.6%
No. of shares (m) 864.0 865.1 864.0 865.1
Diluted earnings per share (Rs)* 4.1
Price to earnings ratio (x)* 18.9
* based on 12 month trailing earnings

What has driven performance in 2QFY09?
  • Dabur reported a consolidated topline growth of 18.4% YoY during 2QFY09 and 17.4% YoY during 1HFY09. While price increases were to the tune of 4% to 5%, the balance growth came from strong volume growth. The standalone sales, which contributed 84% to the total revenues (87% in 2QFY08), increased by 14% YoY during the quarter. The topline performance is in line with our estimates.

    Segment Revenue
    2QFY08 2QFY09 (%) Change 1HFY08 1HFY09 (%) Change
    Consumer Care segment 4,592 5,459 18.9% 8,733 10,152 16.2%
    % of total revenue 77.5% 78.2% 77.8% 77.4%
    Consumer Health segment 403 485 20.2% 724 886 22.3%
    % of total revenue 6.8% 6.9% 6.5% 6.8%
    Food 798 851 6.6% 1,525 1,689 10.8%
    % of total revenue 13.5% 12.2% 13.6% 12.9%
    Retail Business - 16 - 26
    % of total revenue 0.0% 0.2% 0.0% 0.2%
    Others 134 175 31.0% 249 355 42.8%
    % of total revenue 2.3% 2.5% 2.2% 2.7%
    Total 5,927 6,985 17.8% 11,231 13,108 16.7%

  • The consumer care division (CCD) grew by 18.9 % YoY during the quarter led by its strong growth momentum in key categories like hair oils, shampoos and baby and skin care segments. Market share of Vatika shampoos increased to 5.7% as compared to 4.3% in the previous year. The consumer health care division reported a 20% YoY growth mainly on account of Daburís renewed focus on Ayurvedic OTC products. New launches and aggressive marketing aided the growth in this segment.

  • The foods division witnessed a 7% YoY growth during the quarter and 10.8% YoY jump during 1HFY09. Real Fruit juices franchise recorded growth of 13.5% YoY for the period. Foods sales growth for 2QFY09 was 8.6% YoY due to supply side constraints resulting from closure of Nepal factory for a month. Daburís International Business recorded an growth of 40.5% YoY, led by robust performance in GCC, Egypt, Nigeria, Yemen and North African markets. The company specified that 2/3rd of the growth was due to higher volume and the rest due to improved realisations. The companyís retail venture reported sales of Rs 16 m in 1HFY09 (0.2% of total sales).

    Division performance
    Segment Growth Key performers
    Hair oil 16.0% Dabur Amla (17.4%), Anmol Coconut (35.8%) , Vatika (12.5%)
    Shampoo 31.3% Vatika (Henna) (20.4%), Vatika Anti dandruff (20.3%)
    Health Supplements 13.4% Chyawanprash (11.3% YoY), Glucose (14%) and Dabur Honey (17.7%)
    Baby and Skin care 18.1% Gulabari (26%), Lal Tail (21%)
    Oral care 4.4% Red toothpaste (22.4%), Meswak (11%)
    Home care 9.4% Odonil (29%), Sanifresh (16.8%)
    Foods 12.0% Real Fruit juice(13.5%), culinary range (24.3%)

  • The consolidated margins declined by 1.7% YoY during 2QFY09 while on the standalone front the company witnessed stable margins. Aggressive cost management initiatives coupled with a judicious pricing strategy and the continued strong performance in key categories helped the company mitigate the impact of steep cost inflation. The company does not intend to take further price hikes in the coming quarter. The companyís margins are marginally higher than our expectations.

  • On segmental PBIT front, the CCD and CHD division faced pressures. However, the foods segment margins jumped 1.3% during the quarter. The retail venture continued to report losses as it is still in investment phase.

  • Inspite of higher other income and lower interest costs, the consolidated profits grew at a slower pace than the topline during both the period under consideration. Consolidated profits in core business (excluding retail) grew by 17.8% YoY during 1HFY09. Standalone bottomline grew by 18% YoY and 21% YoY respectively for both the periods led by stable margins and higher other income.

What to expect?
At the current price of Rs 77, the stock is trading at a price to earnings multiple of 13.3 times our FY11 estimates. Dabur has done well to witness strong topline performance. It rolled out a host of new products and initiatives. Not only on its domestic front, but also its international operations are witnessing robust growth. Further, the company has done well to mitigate the cost pressures.

The company would continue to invest in its core business but will go slow in its retail venture and will open stores after checking the locationís viability. It has plans to add 15,000 sq/ft of retail space in next 6 months. It also has plans to shift the manufacturing facility from Nepal to India in the coming years.

Dabur has successfully transformed itself from an Ayurvedic player to a consumer product company. It has a strong presence in the well-penetrated and high growth categories. Daburís positioning on the health and wellness platform along with its Ayurvedic (Natural/Herbal) image has proved to be very beneficial. Further, its strong product pipeline helps it to capture a large part of the FMCG space. We remain positive on the stock.

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