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Dabur India (DABUR)
Consumer products
Demonstration of ability to balance growth and margins. 3QFY11 positive
surprises – 10% volume growth and margin resilience – despite 280 bps decline in
gross margins, EBITDA margin expanded 40 bps due to savings in adspends, staff cost
and G&A. All-round growth in key categories – foods, IBD, skin care and CHD did well;
while shampoo continues to reel under high competitive pressure. We keenly watch any
potential impact of political unrest in some of Dabur’s operating areas – Egypt forms
~3-4% of sales (with possible supply chain impact as well). ADD.
Robust quarter
Dabur reported consolidated net sales of Rs10.8 bn (+17%, KIE Rs10.4 bn), EBITDA of Rs2.1 bn
(+19%, KIE Rs1.8 bn) and PAT of Rs1.5 bn (+12%, KIE Rs1.4 bn).
Consolidated sales growth of 17% is driven by 10% organic growth, 4% pricing growth and
3% inorganic growth (Hobi acquisition consolidated from October 7, 2010 to December 31,
2010)
EBITDA margin management was commendable – while there was 280 bps decline in gross
margin due to higher input costs, EBITDA margin expanded 40bps due to savings in staff cost,
adspends and G&A
Category-wise analysis – all-round growth, almost
Hair oil segment sales grew by 12% almost equally split between volume and pricing growth.
Dabur Amla grew by 15% during the quarter – since April 2010, the company has taken
cumulative price hike of ~7% across SKUs. We note that there has been significant inflation in
LLP (~47% in 3QFY11) which is the key raw material for Dabur Amla. Vatika grew by 6% and
the company has taken price hikes in this range as well.
Shampoo sales declined by 30% during the quarter. Micro-marketing initiatives by HUL, P&G
and aggressive trade-spend driven growth strategy of ITC is likely hurting Dabur. While this
category will start benefitting from a favorable base in FY2012E, we believe that underlying
volume growth will continue to be under pressure.
Toothpaste sales growth was 15% in 3QFY11 with volume growth being ~11%. The company
has taken price hikes in some SKUs of Babool and Meswak. Babool sales grew by 16% and
Meswak grew by 8% during the quarter. Toothpowder forms ~30% of sales and sales declined
by ~2% (toothpowder sales of Colgate was likely flat during 3QFY11).
Health supplements sales grew by 13% largely led by volumes – 9% volume growth. The
company has taken ~4% price hike in Chyawanprash and 5% in Dabur Glucose. Nutrigo,
launched in 3QFY11 is doing well and has met management expectations.
Foods portfolio grew by 42% which was entirely volume driven. Real, Activ and
Hommade grew by 44%, 38% and 34% during the quarter. Sales growth was likely
driven by the festive season sales.
Skin care sales grew by 18% in 3QFY11. Gulabari sales grew by 16% of which 10% was
led by pricing. The Fem portfolio was relaunched and sales growth for the quarter was
21%.
Consumer Health Division (CHD) sales grew by 14% of which about 7% was volume led
and balance being pricing led (inflation in key inputs like menthol).
The international business division (IBD) sales grew by 14% in Rupee terms and 19% in
constant currency terms. Key markets are GCC, Egypt, North Africa, Nigeria and Levant.
In terms of categories, shampoo followed by toothpaste performed well.
Going forward, watch for inflation impact, acquisitions and international
operations
Continued input cost inflation in LLPO, herbs coupled with significant competitive
activities in most categories (shampoo, hair oils in particular) which may likely impact
margins. Margin management in this quarter has surprised us positively.
The impact of the Namaste acquisition has not yet been incorporated in our estimates.
We note that Namaste could be ~7% EPS accretive in FY2012E. While the potential EPS
accretion could compensate for any margin pressures, we believe incremental earnings
deserve a lower multiple than Dabur’s current multiple.
We keenly watch any potential impact of political unrest in some of Dabur’s operating
areas – Egypt forms ~3-4% of sales (with possible supply chain impact as well).
Retain ADD; Dabur is one of our preferred picks (apart from APNT, ITC and GSK)
We tweak estimates marginally, and retain our target price of Rs110. Our EPS estimates are
Rs3.2 and Rs3.8 for FY2011E and FY2012E, respectively. Key risks to our ADD rating are (1)
limited pricing power, which makes Dabur vulnerable to input cost inflation, (2) Dabur is not
a market leader in many categories, (3) the company is heavily dependent on North India
(35% of sales) and (4) any prolonged unrest in its key international markets impacting
operations (sales as well as margins).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dabur India (DABUR)
Consumer products
Demonstration of ability to balance growth and margins. 3QFY11 positive
surprises – 10% volume growth and margin resilience – despite 280 bps decline in
gross margins, EBITDA margin expanded 40 bps due to savings in adspends, staff cost
and G&A. All-round growth in key categories – foods, IBD, skin care and CHD did well;
while shampoo continues to reel under high competitive pressure. We keenly watch any
potential impact of political unrest in some of Dabur’s operating areas – Egypt forms
~3-4% of sales (with possible supply chain impact as well). ADD.
Robust quarter
Dabur reported consolidated net sales of Rs10.8 bn (+17%, KIE Rs10.4 bn), EBITDA of Rs2.1 bn
(+19%, KIE Rs1.8 bn) and PAT of Rs1.5 bn (+12%, KIE Rs1.4 bn).
Consolidated sales growth of 17% is driven by 10% organic growth, 4% pricing growth and
3% inorganic growth (Hobi acquisition consolidated from October 7, 2010 to December 31,
2010)
EBITDA margin management was commendable – while there was 280 bps decline in gross
margin due to higher input costs, EBITDA margin expanded 40bps due to savings in staff cost,
adspends and G&A
Category-wise analysis – all-round growth, almost
Hair oil segment sales grew by 12% almost equally split between volume and pricing growth.
Dabur Amla grew by 15% during the quarter – since April 2010, the company has taken
cumulative price hike of ~7% across SKUs. We note that there has been significant inflation in
LLP (~47% in 3QFY11) which is the key raw material for Dabur Amla. Vatika grew by 6% and
the company has taken price hikes in this range as well.
Shampoo sales declined by 30% during the quarter. Micro-marketing initiatives by HUL, P&G
and aggressive trade-spend driven growth strategy of ITC is likely hurting Dabur. While this
category will start benefitting from a favorable base in FY2012E, we believe that underlying
volume growth will continue to be under pressure.
Toothpaste sales growth was 15% in 3QFY11 with volume growth being ~11%. The company
has taken price hikes in some SKUs of Babool and Meswak. Babool sales grew by 16% and
Meswak grew by 8% during the quarter. Toothpowder forms ~30% of sales and sales declined
by ~2% (toothpowder sales of Colgate was likely flat during 3QFY11).
Health supplements sales grew by 13% largely led by volumes – 9% volume growth. The
company has taken ~4% price hike in Chyawanprash and 5% in Dabur Glucose. Nutrigo,
launched in 3QFY11 is doing well and has met management expectations.
Foods portfolio grew by 42% which was entirely volume driven. Real, Activ and
Hommade grew by 44%, 38% and 34% during the quarter. Sales growth was likely
driven by the festive season sales.
Skin care sales grew by 18% in 3QFY11. Gulabari sales grew by 16% of which 10% was
led by pricing. The Fem portfolio was relaunched and sales growth for the quarter was
21%.
Consumer Health Division (CHD) sales grew by 14% of which about 7% was volume led
and balance being pricing led (inflation in key inputs like menthol).
The international business division (IBD) sales grew by 14% in Rupee terms and 19% in
constant currency terms. Key markets are GCC, Egypt, North Africa, Nigeria and Levant.
In terms of categories, shampoo followed by toothpaste performed well.
Going forward, watch for inflation impact, acquisitions and international
operations
Continued input cost inflation in LLPO, herbs coupled with significant competitive
activities in most categories (shampoo, hair oils in particular) which may likely impact
margins. Margin management in this quarter has surprised us positively.
The impact of the Namaste acquisition has not yet been incorporated in our estimates.
We note that Namaste could be ~7% EPS accretive in FY2012E. While the potential EPS
accretion could compensate for any margin pressures, we believe incremental earnings
deserve a lower multiple than Dabur’s current multiple.
We keenly watch any potential impact of political unrest in some of Dabur’s operating
areas – Egypt forms ~3-4% of sales (with possible supply chain impact as well).
Retain ADD; Dabur is one of our preferred picks (apart from APNT, ITC and GSK)
We tweak estimates marginally, and retain our target price of Rs110. Our EPS estimates are
Rs3.2 and Rs3.8 for FY2011E and FY2012E, respectively. Key risks to our ADD rating are (1)
limited pricing power, which makes Dabur vulnerable to input cost inflation, (2) Dabur is not
a market leader in many categories, (3) the company is heavily dependent on North India
(35% of sales) and (4) any prolonged unrest in its key international markets impacting
operations (sales as well as margins).
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