Dabur: Q2FY11 - Disappointing performance for domestic operations:: JPMorgan

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Dabur India Limited
Neutral
DABU.BO, DABUR IN
Q2FY11 - Disappointing performance for domestic
operations



• Q2FY11 – Disappointing performance of domestic operations. Dabur
reported consolidated net Sales, EBITDA and PAT growth of 15%, 16% and
15% y/y respectively for Q2FY11. Both sales and earnings are 2% below our
estimates. On standalone (domestic) business, growth rates were quite
disappointing with sales, EBITDA and PAT growth of 13%, 7% and 1%
respectively, implying most of the growth was driven by better profitability of
international business.
• Volume growth disappoints. Underlying domestic volume growth of 10% was
below expectations. Domestic price/mix growth was c3%. International division
registered 20% volume growth and value growth of 19% impacted negatively
by 1.5% due to currency translational losses.
• Low A&P spends make up for weak gross margins. High input cost
pressures were visible during Q2FY11 with consolidated gross margins
declining 210bp y/y. However advertising spends were flat y/y (A&P/sales
declined 170bp y/y), helping consolidated EBITDA margins to be up 20bp y/y.
Important to note is that standalone (domestic) business witnessed 130bp y/y
decline in EBITDA margins on back of 240bp y/y decline in gross margins.
A&P spends for domestic standalone operations were up 10% y/y, though
A&P/Sales dipped 30bp y/y.
• Category sales performance – 1) Hair care segment grew mere 2% with hair
oils growing 7% (supported by 2-3% price growth we estimate) and shampoo
sales registering decline of 14% y/y during the quarter, 2) Oral care saw revenue
growth of 11% with toothpaste sales up 14%, 3) Health supplements grew 31%
y/y driven by strong growth for Chywanprash (44%) and glucose (29%), 4) Skin
care sales growth at 9% was disappointing impacted by slower growth for
Gulabari brand, 5) Home care sales grew 42% y/y on account of sharp growth
for Odonil and Odomos brands helped by spread of malaria due to extended
monsoons, 6) CHD sales grew 14%, and 7) Foods division maintained its
volume led 22% sales growth.
• We have a Neutral rating on the stock and our Mar’11 target price is Rs100
(due to 1:1 stock split) based on 23x one-year forward P/E multiple, which is in
line with the company’s past three-year average. Key downside risks to our PT
are deceleration in volume growth and increased competition. Key upside risks
are higher-than-expected volume growth, margin expansion and any earnings
accretive acquisition.