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Dabur: Margin downslide continues

Nov 7, 2011

Dabur India Limited has announced its first quarter results for financial year 2011-12 (2QFY12). The company has reported a 29.8% YoY and 8.4% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated sales for 2QFY12 increased by 29.8% YoY backed by robust sales performance by all divisions. Growth was driven by a mix of price, volume and acquisitions. For H1FY12, sales grew by 30.5% on a YoY basis.
  • Operating (EBITDA) margin fell by 220 basis points YOY during 2QFY12. The lower profitability was on account of higher raw material expense and other expenditure. The EBIDTA margin contracted by 180 basis points during H1FY12.
  • At the net level, profits grew by a mere 8.4% YoY due to a 3.7 folds jump in interest outgo, partially offset by higher other income. The net profit margin was down by 260 basis points YOY during 2QFY12. For H1FY12, net profit margin contracted by 190 basis points.

Consolidated picture
(Rs m) 2QFY11 2QFY12 % Change H1FY11 H1FY12 % Change
Revenues 9,826 12,707 29.3% 19,066 24,832 30.2%
Expenditure 7,744 10,300 33.0% 15,550 20,695 33.1%
Operating profit (EBDITA) 2,082 2,407 15.6% 3,516 4,137 17.7%
EBDITA margin (%) 21.2% 18.9% -2.2% 18.4% 16.7% -1.8%
Other income 67 106 58.1% 139 257 84.4%
Interest 46 172 276.4% 81 298 266.5%
Depreciation 142 175 23.0% 277 329 18.7%
Profit before tax 1,960 2,166 10.5% 3,297 3,767 14.3%
Minority Interest 1 (0)   7 2  
Extraordinary Items - -   - -  
Tax 356 427 20.0% 619 750 21.1%
Profit after tax/(loss) 1,604 1,739 8.4% 2,671 3,016 12.9%
Net profit margin (%) 16.3% 13.7% -2.6% 14.0% 12.1%  
No. of shares (m)         1,742  
Diluted earnings per share (Rs)*         3.4  
Price to earnings ratio (x)*         28.9  
(*On a trailing 12-month basis)

What has driven performance in 2QFY12?
  • Excluding acquisitions, Dabur's topline grew by 12.9% in 2QFY12 driven by 10% rise in offtake. The Hobi and Namaste businesses contributed 12.8% to consolidated sales during the quarter. Dabur's domestic business recorded a growth of 11% YoY on a 5% rise in volumes. The largest segment consumer care (sales share of 84%) grew by 29% YOY. The growth was backed by 27% jump in hair oil sales and revenue increase of over 5% each from oral care products and health supplements. The sales of skin care, OTC and ethicals were impacted by the distribution re-alignment after consumer care division was merged with consumer health division. The next big segment, foods having sales share of 12% grew by a stellar 27.5% during the quarter aided by robust performance of Real & Activ brands. The company's international business grew by 22.8% organically contributed by shampoo, hair cream and toothpaste categories. The key growth markets were Gulf Cooperation Council, Nigeria and Egypt. However sales in Yemen, Syria and Libya markets were impacted by the political disturbance. During the quarter, Dabur incorporated a subsidiary in Sri Lanka to set up a juice manufacturing plant likely to be operational by FY13.

    2QFY12 Division Performance
    Segment Growth Key performers
    Hair oil 26.60%  
    Shampoo -25.40%  
    Oral care 6.00% Toothpastes (7.8%), Toothpowder (1.7%)
    Health Supplements 7.8%  
    Skin care 7.20% Fem (0%)
    Foods 27.50%  
    Home care 0.50%  
    Digestives and baby care 3.80%  
    OTC -5.90%  
    Ethicals -11.60%  

  • The robust growth in sales has only partially percolated to the operating level due to higher outgo. Among expenses, cost of goods sold and other expenditure increased by 300 basis points and 150 basis points respectively, as a percentage of sales. The company incurred cost of Rs 200 m towards revamp of distribution network. Apart from restructuring costs, higher expense on marketing, power and fuel pushed up other expenditure outgo by 48% during the quarter. Only advertisement-to-sales ratio declined by 230 basis points. As a result, the EBIDTA margin was down by 220 basis points. The profitability of both consumer care and food segments eroded during the quarter.

    All round picture
      % contribution sales Revenue growth PBIT growth PBIT margin (%) PBIT margin gain/(decline) basis points
    Consumer Care 84% 29% 7% 23% -461.8
    Foods 12% 21% 22% 18% -372.3
    Retail 1% 98% 4% -28%  
    Others 3% 90% 26% 7% -369.1

  • The growth in net profit was a mere trickle at 8.4% on account of a slower rise in operating income and 3.7 folds jump in interest expense. Although other income grew by 58%, depreciation and tax expenses were up by 20%-23% during the quarter.

What to expect?
At a price of Rs. 99.5, the stock is trading at 25.5 times our estimated FY14 earnings. Dabur has been witnessing robust growth backed by good offtake as well as incremental sales from Hobi and Namaste acquisitions. Despite judicious price hikes, the company has not succeeded in plugging inflation in raw material costs and other expenses and ballooning interest charges on higher debt. Dabur has said that it will effect moderate price hikes in healthcare and personal care products during October-March 2011-12 which is expected to improve margins in the last two quarters of FY12. The company expects better topline growth in the H2FY12 on strong revival in sales of hair oil, beverages and health supplements. But at current levels, we feel the stock is fairly valued and advise our subscribers to be cautious.

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