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Dabur: Low interest boosts margin
Nov 11, 2014

Dabur India Limited has announced its second quarter results for financial year 2014-2015 (1QFY15). The company has reported a 10% YoY and 15% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Dabur posted a 10.3% growth in consolidated revenues in 2QFY15 led by 13.2% growth in the domestic business and 8.3% rise in international business. For 1HFY15, revenue growth recorded was 11.7%.
  • However, operating margin contracted by 0.6% in 2QFY15 due to high costs of goods sold and staff costs (both as a proportion of sales). The operating margin for 1HFY15 was lower by 0.4%.
  • Aided by reduction in interest charges coupled with higher other income earned, the net profit margin expanded by 0.6% in 2QFY15. For 1HFY15, the net margin improved marginally by 0.3%.

Consolidated picture
(Rs m) 2QFY14 2QFY15 % Change 1HFY14 1HFY15 % Change
Revenues 17,489 19,296 10.3% 34,013 37,984 11.7%
Expenditure 14,197 15,787 11.2% 28,344 31796 12.2%
Operating profit (EBDITA) 3,292 3,508 6.6% 5,669 6,189 9.2%
EBDITA margin (%) 18.8% 18.2% -0.6% 16.7% 16.3% -0.4%
Other income 226 389 72.1% 557 748 34.3%
Interest 200 102 -49.0% 333 203 -39.0%
Depreciation 236 292 23.8% 456 559 22.6%
Profit before tax 3,083 3,503 13.6% 5,437 6,175 13.6%
Tax 579 616 6.4% 1,063 1,176 10.6%
Minority Interest 6 13   16 16  
Extraordinary Items - -     (1)  
Profit after tax/(loss) 2,498 2,875 15.1% 4,358 4,982 14.3%
Net profit margin (%) 14.3% 14.9% 0.6% 12.8% 13.1% 0.3%
No. of shares (m)         1,756  
Diluted earnings per share (Rs)*         5.6  
Price to earnings ratio (x)*         40.8  
* On a trailing 12-months basis

What has driven performance in 2QFY15?

  • Dabur clocked an 11.8% constant-currency growth in consolidated sales led by 13.8% growth in domestic business and an 8.3% increase in overseas business in constant-currency terms. The domestic business continued to witness strong offtake with volume growth of 8.6%. The foods business posted the fastest growth of 29% aided strong performance of Real juices and further bolstered by robust pick-up in Festive Packs. Hair oils registered a strong growth of 13.9% led by good growth in coconut and perfumed hair oils. Even digestives, health supplements and home care clocked double-digit sales growth during the quarter. The skin care portfolio grew by 9.7% mainly led by double-digit growth in bleaches. The oral care portfolio's growth remained subdued at 8% due to poor performance of the Babool toothpaste.

  • Growth in the overseas business was led by good growth in GCC, Egypt and Turkey markets. However the Namaste business remained under pressure due to slowdown in the US and high base in non-US markets.

    2QFY15 division performance (domestic)
    Segment Growth
    Hair care 13.9%
    Oral care 8.1%
    Health Supplements 10.1%
    Skin care 9.7%
    Foods 29.0%
    Home care 10.2%
    Digestives 12.3%
    OTC & Ethicals 7.5%

  • But steep rise in input costs and wages led to an erosion of 0.6% in the operating margin for the quarter. Other expenses fell by 5% during the quarter on account of savings due to change in the distribution pattern in the US. Segment wise both consumer care and food business segments have reported slide in EBIT margins during the quarter.

    All round picture
    As a % of sales 2QFY14 2QFY15  
    Total raw material costs 46.2% 46.8% 0.7%
    Advertising costs 13.0% 13.1% 0.1%
    Staff costs 9.1% 9.5% 0.4%
    Other expenditure 12.9% 12.4% -0.5%

  • At the net level, the company has managed to improve margin by 0.6% due to a 49% reduction in interest costs coupled with 72% jump in other income earned. The tax incidence reduced to 17.6% in 2QFY15 from 18.8% in 2QFY14.
What to expect?
Dabur continued to grow at a robust pace on the back of strong growth in offtake in the domestic markets. However international business grew at a relatively subdued pace due to pressure witnessed in the Namaste business. Its strong focus on the healthcare business and increased distribution reach through Project Core is expected to yield results as urban demand picks up.

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. At the current price of Rs 227, the stock is trading at 28 times its FY17 forecasted earnings. At current valuations the stock is overpriced and we would recommend a SELL on the stock at current price levels.

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