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Price increases will start happening
It sees FY12 as less challenging than FY11 on bottom-line growth as a further increase in the tax rate is unlikely; price
increases of c4% likely in FY12 and the overall climate for price increases is starting to look favourable.
Steep inflation seen on edible oils, packing material, LLPO. Inflation for overall Dabur product basket is 8%. Buying spot
as prices are too volatile to predict. High inflation a risk to demand and the company sees volume growth at 8-10% and
value growth of 12-15% for the domestic part of the business.
A&P as % sales to be at 12-13%. Current products fully supported but new product development has slowed down.
Eight new OTC healthcare products in the pipeline to be launched over 9-18 months.
International business: Egypt forms 3% of top line, hence no major impact. c25% of business is international and it is
growing faster than the domestic business both organically and inorganically; y-t-d international margins are 23%, higher
than the domestic business. Margins have expanded 900 bps over three years due to product mix improvement and
operating leverage. When making acquisitions, Dabur makes sure that businesses are EPS accretive in the first year.
Valuation and risks
Our target price of INR114 is based on PE of 25x applied to Sep-2012e EPS. Over the last three years the forward PE has
averaged 22x within a band of 13-29x. Strong volumes and broad-based growth justify the 15% premium over historical
forward PE, in our view. Our FY13e EPS is INR4.94, which represents a 3-year (FY10-13e) CAGR of 19.6%. The stock is
trading at 22.2x FY12e EPS.
Downside risk: Higher raw material costs; higher than estimated retail losses; higher ad spend due to increased competition; price
competition leading to lower unit realisations and margin compression; expected synergies from FCPL not realised.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Price increases will start happening
It sees FY12 as less challenging than FY11 on bottom-line growth as a further increase in the tax rate is unlikely; price
increases of c4% likely in FY12 and the overall climate for price increases is starting to look favourable.
Steep inflation seen on edible oils, packing material, LLPO. Inflation for overall Dabur product basket is 8%. Buying spot
as prices are too volatile to predict. High inflation a risk to demand and the company sees volume growth at 8-10% and
value growth of 12-15% for the domestic part of the business.
A&P as % sales to be at 12-13%. Current products fully supported but new product development has slowed down.
Eight new OTC healthcare products in the pipeline to be launched over 9-18 months.
International business: Egypt forms 3% of top line, hence no major impact. c25% of business is international and it is
growing faster than the domestic business both organically and inorganically; y-t-d international margins are 23%, higher
than the domestic business. Margins have expanded 900 bps over three years due to product mix improvement and
operating leverage. When making acquisitions, Dabur makes sure that businesses are EPS accretive in the first year.
Valuation and risks
Our target price of INR114 is based on PE of 25x applied to Sep-2012e EPS. Over the last three years the forward PE has
averaged 22x within a band of 13-29x. Strong volumes and broad-based growth justify the 15% premium over historical
forward PE, in our view. Our FY13e EPS is INR4.94, which represents a 3-year (FY10-13e) CAGR of 19.6%. The stock is
trading at 22.2x FY12e EPS.
Downside risk: Higher raw material costs; higher than estimated retail losses; higher ad spend due to increased competition; price
competition leading to lower unit realisations and margin compression; expected synergies from FCPL not realised.
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