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Result bang in line; maintains double digit volume growth of ~10%
Dabur’s Q3FY11 revenue increased 16.6% Y-o-Y to INR 10.8 bn (our estimate
~INR 10.7 bn). Core profit growth of 11.8% Y-o-Y to INR 1.5 bn (bang in line
with our estimate of INR 1.5 bn) was impacted by increase in tax rate, which
jumped 228bps Y-o-Y to 18.8%. Volume growth was ~10% Y-o-Y in the
domestic business.
Margin pressure offset by lower ad spends
The company’s EBITDA grew 21.2% Y-o-Y to ~INR 2.2 bn as EBITDA margin
expanded 69bps Y-o-Y to 19.9%. COGS increase of 265bps was offset by lower
advertising and sales promotion (A&P) spending (~213bps), lower staff costs
(~54bps), and lower other expenditure (~66bps). With rising competition and
competitors spending heavily on ads, it needs to be watched if Dabur is able to
sustain sales in terms of volumes at such low A&P spending.
Growth across SBUs; shampoo the only concern
Dabur’s consumer care division (CCD) registered 13.8% top line growth in
Q3FY11 to ~INR 8.7 bn; the division posted strong growth across categories
with hair oil posting 15% growth, oral care posted 9.4% growth, health
supplements grew at 12.7%, home care reported robust growth of 24.2%, foods
bounced back with 42% growth, skin care, including the Fem portfolio, grew at
18%, and shampoos contracted 29.8% in Q3FY11. CHD sales grew 13.8% Y-o-Y
in Q3FY11. Dabur’s international business registered a 19.2% top line growth led
by Nigeria, Egypt, Levant, North Africa, and GCC.
Outlook and valuations: Strong volume growth; maintain ‘BUY’
Volumes were robust in domestic and international businesses in Q3FY11. The
only negative is the higher tax rate and reduced ad spending in a high
competitive scenario. However, with higher margins, increase in market share
and consolidation of Namaste from Q4FY11, we re-iterate our ‘BUY’
recommendation on the stock and rate it ‘Sector Outperformer’ on relative
return basis.
Q3FY11 conference call takeaways
• Foods: Foods business soared 44% Y-o-Y in Q3FY11 due to gift pack sales in Diwali.
The company believes 25% growth in this business is sustainable. It launched fiber
rich variant.
• Fem: The company is happy with the relaunch and expects a sustainable growth rate
of 15-20% in coming years. Also, post Q1FY12 it will look at harnessing synergies
between the distribution of Fem and rest of Dabur. There is no more supply
disruption and newly launched Gold bleach has been a success.
• Toothpaste: Dabur expanded market share by 130bps Y-o-Y in Q3FY11 and is
confident of growing ahead of the market. Margins in this business are already low;
hence, the company does not expect a repeat of shampoo’s disruptive completion
shown by MNCs.
• Chyawanprash: Flavored Chyawanprash has done really well and the company also
launched sugar free Chyawanprash. Market share in Chyawanprash expanded by
360bps Y-o-Y. The company will not invest behind brand spends in Chyawanprash
Junior as margins have come off and it is important to focus on existing and core
format.
• Hair oil: Slight slowdown in this category, but the company does not believe it as a
structural issue. Dabur Amla grew 14-15% Y-o-Y while Vatika’s growth was mute due
to some down trading because of price increases.
• Gulabari: The company took a 10% price hike and does not expect any impact as
Gulabari has near monopoly in rose water.
• Odomos: Q3 is a weak quarter and should not be seen as an indicative figure for full
year. The main quarters are Q1 and Q2.
• Digestives: Sales grew 11% Y-o-Y and there was some slowdown in candies in
which margins have been impacted.
• OTC products: Nutrigo health supplements have met initial bench marks and Dabur
is testing waters in OTC. Its key competitors are Supractive and Revital. If Nutrigo
does well, the company may look at expanding its product portfolio in niche spaces.
Honitus Day & Night tablets for Cold & Flu launched in Q3FY11 have done well.
• Shampoo: Disruptive competitive activity with high intensity of consumer
promotions/ad spends by MNCs led to contraction of shampoos. Shampoo business
was also impacted by high base effect (Q3FY10 grew 44% Y-o-Y). Dabur now has
taken corrective action and has increased grammage by 40% in sachets which will
address the volume growth aspect. The company has seen good revival in Jan 2011
and expects decline in shampoo to get addressed in Q4FY11 itself and expects good
growth in FY12. Due to higher grammage, Dabur expects margins to dip in shampoo.
Margins in shampoo business were historically high and have now normalised.
• International business: There was a translation loss of currency of 2-3% in sales.
Nepal business was a laggard in Q3FY11. Operations in Nepal are likely to normalize
from Feb as there were some supply issues in Dec and Jan. Sustainable margins in
international business are 23-25% while it was 28% in Q3FY11 as it is the best
quarter. Hobi has a ~455% gross margin while Namaste has ~48% gross margin.
• Egypt: The company is cautious on the current scenario. Egypt accounts for 3% of
consol sales. Dabur has production facilities in UAE and Nigeria which can help in
sourcing. Egypt does not supply to any other country and in fact sources from
neighboring countries.
• Retail business: The company has 32 stores now; most stores break even quickly.
It will expand to 50-55 stores by FY12E end while keeping losses at FY11 level. Dabur
is expecting losses of ~INR 100 mn in FY11E. The company is focused on building
scale of this business and should benefit once retail FDI is open.
• Price hikes: Dabur has already taken ~4% price hike YTD and expects gross
margins to remain stable Q-o-Q in Q4FY11. The company does not anticipate any
impact on growth following these price hikes. It will look at taking further price hike
towards end Q4FY11 if raw material inflation inches up further.
• Margin: 280bps gross margin contraction Y-o-Y due to sharp increase in raw material
prices. The price hikes were not sufficient to offset the cost inflation. LLP, vegetable
oil, and coconut oil are all trending up.
• Ad spends: Dabur expects it to be in the range of 12-13.5% in the coming quarters
for domestic business. The company will slow down pace of new product launches in
home & personal care till there is gross margin pressure.
• Tax rates: The company will remain under MAT rate for the next few years.
• M&A strategy: Dabur has the bandwidth for bolt-on acquisitions and believes it is a
good way to grow and hedge against certain disruptive competition. The company
may look at health care opportunities. Valuations in India do not justify the value
they bring to the table. The company finds good value businesses overseas providing
opportunity for EPS accretive acquisitions.
Q3FY11 results review
Revenues increased 16.6% Y-o-Y to INR 10.8 bn (our estimate INR 10.7 bn).
Core profit increased 11.8% Y-o-Y to INR 1.5 bn (bang in line with our estimate ~INR
1.5 bn) impacted by increase in tax rate, which jumped 228bps Y-o-Y to 18.8% in
Q3FY11. Volume growth was ~10% Y-o-Y in the domestic business.
Dabur’s EBITDA grew 21.2% Y-o-Y to ~INR 2.2 bn as EBITDA margin expanded 69bps Yo-
Y to 19.9%. COGS increase of 265bps was offset by lower A&P spend (~213bps),
lower staff costs (~54bps) and lower other expenditure (~66bps). With increasing
competition and competitors spending heavily on ads, it needs to be watched if Dabur is
able to sustain sales in terms of volumes at such low A&P spending.
In Q3FY11, CCD, consumer health division (CHD), and international business division
(IBD) grew 13.8%, 13.8%, and 19.2%, respectively. Growth in both CCD and IBD was
led by strong double-digit volume growth.
Divisional performance
I. Consumer Care Division (CCD)
Dabur has a strong presence in hair care and oral care. Hair care posted growth of
5.1% during 9mFY11 with hair oils growing at 12.4%. Oral care posted 13.2%
growth during 9mFY11 with growth in toothpastes at 18.7%. Health supplements
grew at 23.7% in 9mFY11 led by Chyawanprash. Home care surged 33.1%. Foods
reported robust growth of 27.7% during 9mFY11.
Hair oil
Dabur Amla hair oil grew 15% in 9mFY11 in spite of increased competitive activity
primarily due to increased consumer promos on select SKUs. Vatika hair oil grew by 9%.
Anmol coconut oil recorded a growth of 10.5% in 9mFY11. Dabur has increased media
presence and consumer promotion of its Vatika Almond Hair Oil thereby creating brand
awareness.
Shampoo
Vatika shampoos contracted 19.3% in 9mFY11 with 29.8% dip in Q3FY11. In Q3FY10,
shampoos category, led by Vatika, had recorded 41% rise in sales and hence was very
high base which further negatively impacted shampoo growth. Marketing and
promotional activities continued as market share in shampoo improved to 6.9% in
Q3FY11 from 6.5% in Q2FY11 as per A C Nielsen.
Oral care
The oral care category reported growth of 13.2% for 9mFY11. Toothpastes grew 18.7%
for 9mFY11. Dabur Red Tooth Paste posted growth of 20.5% during 9mFY11 driven by
aggressive marketing and consumer activations. Babool brand including variants grew
19.6%. Meswak toothpaste grew 13.1%. Dabur Lal Dant Manjan recorded growth of
2.3% in 9mFY11. Volume share in toothpaste improved to 14.9% in Q3FY11 from 13.6%
in Q2FY11 as per A C Nielsen.
Health supplements
Health supplements recorded 23.7% growth during 9mFY11. Dabur Chyawanprash
surged 25.5% in 9mFY11 with market share in volume terms increasing to 69.9% in
Q3FY11 from 66.3% in Q3FY10 as per AC Nielsen. Dabur Honey recorded 12.8% growth
in 9mFY11. Dabur Glucose witnessed strong growth of 42.6% in 9mFY11 and continued
to gain market share. Nutrigo Health supplements launched in current quarter have been
well accepted.
Digestives and baby care
The digestives category grew 13.3% in 9mFY11. Hajmola tablets grew 13% in 9mFY11.
Lal Tail has grown at 14% during 9mFY11 driven by brand restaging in new packs.
Skin care
Gulabari brand grew by 15.7% in 9mFY11 driven by focused marketing initiatives. Fem
portfolio grew 14.3% in 9mFY11 with growth in Fem bleaches at 18.1%.
Home care
Home care grew 33.1% in 9mFY11. Sanifresh grew 23.2% and Odonil 65.9% in 9mFY11
post relaunch. Odonil Pluggy electrical air fresheners witnessed positive consumer
response. Odomos grew 24.2% in 9mFY11.
Foods
Foods delivered a growth of 27.7% in 9mFY11. Real Fruit Juices recorded growth of 29%
in 9mFY11. Activ range grew by 27% in 9mFY11. Hommade brand with culinary range
grew by 33.6%.
II. Consumer health division
CHD registered 13% growth in 9mFY11 and 13.8% in Q3FY11 driven by aggressive
marketing efforts. Pudin Hara 14% in 9mFY11; new Pudin Hara Lemon Fizz launched
to target the acidity segment. Honitus franchise grew by 25% in 9mFY11; Shilajit
registered growth of 22.8% in 9mFY11 driven by consumer activations;
Dashmularishta registered growth of 13.2%. Honitus Day & Night tablets launched
in Q3FY11.
III. International business division
International sales increased 20.3% in 9mFY11 led by strong volume growth —
same currency growth of 25.3% in H1FY11 primarily volume driven. GCC, Egypt,
North Africa, Nigeria and Levant registered strong growth. Key growth categories
were shampoos, hair creams and tooth pastes.
Company Description
Dabur has three divisions in India apart from its international operations. Consumer care
division (CCD) offers a wide range of products in hair care, oral care, health
supplements, digestives and candies, and baby and skin care products, based on
ayurveda. The consumer health division (CHD) includes over-the-counter (OTC)
products, Asavs, and branded ethical, and classic products. The third division, Dabur
Foods Ltd produces fruit juices, cooking pastes, sauces, and items for institutional food
purchases. Dabur is unique among its FMCG peers because of its positioning as an Indian
company whose products are derived from exotic sources such as ancient ayurvedic
texts and natural ingredients such as herbs.
The company has various brand leaders in different market segments - Dabur
Chyawanprash, a health tonic, and Hajmola - a digestive tablet. Real, launched during
1996-97, has also successfully carved its niche in the market.
Investment Theme
Dabur’s broad product portfolio provides the best play on Indian FMCG spend by virtue of
its strong presence in less penetrated and high growth categories. Dabur’s positioning on
the ‘health and wellness’ platform, backed by its ANH (ayurvedic/natural/herbal) image
is very progressive. This, combined with its demonstrated ability to create new
categories and sub-categories, makes it best-placed to capture lifestyle changes-led
growth in the FMCG space. Dabur has also demonstrated its ability to make and
integrate smart acquisitions (Balsara) that complement its product portfolio and thereby
drive inorganic growth. Improvement in margins of foods and international businesses
are expected to result in improvement in margins for the consolidated operations.
Key Risks
A slowdown in rural demand due to lower government spending or a monsoon failure
could impact Dabur’s revenues significantly. The company’s products such as Dabur
Chyawanprash and Dabur Lal Tail are prominently sold in the rural areas, and hence,
depend on growth in rural demand.
Further, Ayush, the Ayurvedic Association of India, has recently declared strict
adherence to ayurvedic norms; the body asked many companies to change the
formulation of Chyawanprash. Any such changes in future could dampen the sales,
especially during the change of formulation, when the product is taken off the shelf.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Result bang in line; maintains double digit volume growth of ~10%
Dabur’s Q3FY11 revenue increased 16.6% Y-o-Y to INR 10.8 bn (our estimate
~INR 10.7 bn). Core profit growth of 11.8% Y-o-Y to INR 1.5 bn (bang in line
with our estimate of INR 1.5 bn) was impacted by increase in tax rate, which
jumped 228bps Y-o-Y to 18.8%. Volume growth was ~10% Y-o-Y in the
domestic business.
Margin pressure offset by lower ad spends
The company’s EBITDA grew 21.2% Y-o-Y to ~INR 2.2 bn as EBITDA margin
expanded 69bps Y-o-Y to 19.9%. COGS increase of 265bps was offset by lower
advertising and sales promotion (A&P) spending (~213bps), lower staff costs
(~54bps), and lower other expenditure (~66bps). With rising competition and
competitors spending heavily on ads, it needs to be watched if Dabur is able to
sustain sales in terms of volumes at such low A&P spending.
Growth across SBUs; shampoo the only concern
Dabur’s consumer care division (CCD) registered 13.8% top line growth in
Q3FY11 to ~INR 8.7 bn; the division posted strong growth across categories
with hair oil posting 15% growth, oral care posted 9.4% growth, health
supplements grew at 12.7%, home care reported robust growth of 24.2%, foods
bounced back with 42% growth, skin care, including the Fem portfolio, grew at
18%, and shampoos contracted 29.8% in Q3FY11. CHD sales grew 13.8% Y-o-Y
in Q3FY11. Dabur’s international business registered a 19.2% top line growth led
by Nigeria, Egypt, Levant, North Africa, and GCC.
Outlook and valuations: Strong volume growth; maintain ‘BUY’
Volumes were robust in domestic and international businesses in Q3FY11. The
only negative is the higher tax rate and reduced ad spending in a high
competitive scenario. However, with higher margins, increase in market share
and consolidation of Namaste from Q4FY11, we re-iterate our ‘BUY’
recommendation on the stock and rate it ‘Sector Outperformer’ on relative
return basis.
Q3FY11 conference call takeaways
• Foods: Foods business soared 44% Y-o-Y in Q3FY11 due to gift pack sales in Diwali.
The company believes 25% growth in this business is sustainable. It launched fiber
rich variant.
• Fem: The company is happy with the relaunch and expects a sustainable growth rate
of 15-20% in coming years. Also, post Q1FY12 it will look at harnessing synergies
between the distribution of Fem and rest of Dabur. There is no more supply
disruption and newly launched Gold bleach has been a success.
• Toothpaste: Dabur expanded market share by 130bps Y-o-Y in Q3FY11 and is
confident of growing ahead of the market. Margins in this business are already low;
hence, the company does not expect a repeat of shampoo’s disruptive completion
shown by MNCs.
• Chyawanprash: Flavored Chyawanprash has done really well and the company also
launched sugar free Chyawanprash. Market share in Chyawanprash expanded by
360bps Y-o-Y. The company will not invest behind brand spends in Chyawanprash
Junior as margins have come off and it is important to focus on existing and core
format.
• Hair oil: Slight slowdown in this category, but the company does not believe it as a
structural issue. Dabur Amla grew 14-15% Y-o-Y while Vatika’s growth was mute due
to some down trading because of price increases.
• Gulabari: The company took a 10% price hike and does not expect any impact as
Gulabari has near monopoly in rose water.
• Odomos: Q3 is a weak quarter and should not be seen as an indicative figure for full
year. The main quarters are Q1 and Q2.
• Digestives: Sales grew 11% Y-o-Y and there was some slowdown in candies in
which margins have been impacted.
• OTC products: Nutrigo health supplements have met initial bench marks and Dabur
is testing waters in OTC. Its key competitors are Supractive and Revital. If Nutrigo
does well, the company may look at expanding its product portfolio in niche spaces.
Honitus Day & Night tablets for Cold & Flu launched in Q3FY11 have done well.
• Shampoo: Disruptive competitive activity with high intensity of consumer
promotions/ad spends by MNCs led to contraction of shampoos. Shampoo business
was also impacted by high base effect (Q3FY10 grew 44% Y-o-Y). Dabur now has
taken corrective action and has increased grammage by 40% in sachets which will
address the volume growth aspect. The company has seen good revival in Jan 2011
and expects decline in shampoo to get addressed in Q4FY11 itself and expects good
growth in FY12. Due to higher grammage, Dabur expects margins to dip in shampoo.
Margins in shampoo business were historically high and have now normalised.
• International business: There was a translation loss of currency of 2-3% in sales.
Nepal business was a laggard in Q3FY11. Operations in Nepal are likely to normalize
from Feb as there were some supply issues in Dec and Jan. Sustainable margins in
international business are 23-25% while it was 28% in Q3FY11 as it is the best
quarter. Hobi has a ~455% gross margin while Namaste has ~48% gross margin.
• Egypt: The company is cautious on the current scenario. Egypt accounts for 3% of
consol sales. Dabur has production facilities in UAE and Nigeria which can help in
sourcing. Egypt does not supply to any other country and in fact sources from
neighboring countries.
• Retail business: The company has 32 stores now; most stores break even quickly.
It will expand to 50-55 stores by FY12E end while keeping losses at FY11 level. Dabur
is expecting losses of ~INR 100 mn in FY11E. The company is focused on building
scale of this business and should benefit once retail FDI is open.
• Price hikes: Dabur has already taken ~4% price hike YTD and expects gross
margins to remain stable Q-o-Q in Q4FY11. The company does not anticipate any
impact on growth following these price hikes. It will look at taking further price hike
towards end Q4FY11 if raw material inflation inches up further.
• Margin: 280bps gross margin contraction Y-o-Y due to sharp increase in raw material
prices. The price hikes were not sufficient to offset the cost inflation. LLP, vegetable
oil, and coconut oil are all trending up.
• Ad spends: Dabur expects it to be in the range of 12-13.5% in the coming quarters
for domestic business. The company will slow down pace of new product launches in
home & personal care till there is gross margin pressure.
• Tax rates: The company will remain under MAT rate for the next few years.
• M&A strategy: Dabur has the bandwidth for bolt-on acquisitions and believes it is a
good way to grow and hedge against certain disruptive competition. The company
may look at health care opportunities. Valuations in India do not justify the value
they bring to the table. The company finds good value businesses overseas providing
opportunity for EPS accretive acquisitions.
Q3FY11 results review
Revenues increased 16.6% Y-o-Y to INR 10.8 bn (our estimate INR 10.7 bn).
Core profit increased 11.8% Y-o-Y to INR 1.5 bn (bang in line with our estimate ~INR
1.5 bn) impacted by increase in tax rate, which jumped 228bps Y-o-Y to 18.8% in
Q3FY11. Volume growth was ~10% Y-o-Y in the domestic business.
Dabur’s EBITDA grew 21.2% Y-o-Y to ~INR 2.2 bn as EBITDA margin expanded 69bps Yo-
Y to 19.9%. COGS increase of 265bps was offset by lower A&P spend (~213bps),
lower staff costs (~54bps) and lower other expenditure (~66bps). With increasing
competition and competitors spending heavily on ads, it needs to be watched if Dabur is
able to sustain sales in terms of volumes at such low A&P spending.
In Q3FY11, CCD, consumer health division (CHD), and international business division
(IBD) grew 13.8%, 13.8%, and 19.2%, respectively. Growth in both CCD and IBD was
led by strong double-digit volume growth.
Divisional performance
I. Consumer Care Division (CCD)
Dabur has a strong presence in hair care and oral care. Hair care posted growth of
5.1% during 9mFY11 with hair oils growing at 12.4%. Oral care posted 13.2%
growth during 9mFY11 with growth in toothpastes at 18.7%. Health supplements
grew at 23.7% in 9mFY11 led by Chyawanprash. Home care surged 33.1%. Foods
reported robust growth of 27.7% during 9mFY11.
Hair oil
Dabur Amla hair oil grew 15% in 9mFY11 in spite of increased competitive activity
primarily due to increased consumer promos on select SKUs. Vatika hair oil grew by 9%.
Anmol coconut oil recorded a growth of 10.5% in 9mFY11. Dabur has increased media
presence and consumer promotion of its Vatika Almond Hair Oil thereby creating brand
awareness.
Shampoo
Vatika shampoos contracted 19.3% in 9mFY11 with 29.8% dip in Q3FY11. In Q3FY10,
shampoos category, led by Vatika, had recorded 41% rise in sales and hence was very
high base which further negatively impacted shampoo growth. Marketing and
promotional activities continued as market share in shampoo improved to 6.9% in
Q3FY11 from 6.5% in Q2FY11 as per A C Nielsen.
Oral care
The oral care category reported growth of 13.2% for 9mFY11. Toothpastes grew 18.7%
for 9mFY11. Dabur Red Tooth Paste posted growth of 20.5% during 9mFY11 driven by
aggressive marketing and consumer activations. Babool brand including variants grew
19.6%. Meswak toothpaste grew 13.1%. Dabur Lal Dant Manjan recorded growth of
2.3% in 9mFY11. Volume share in toothpaste improved to 14.9% in Q3FY11 from 13.6%
in Q2FY11 as per A C Nielsen.
Health supplements
Health supplements recorded 23.7% growth during 9mFY11. Dabur Chyawanprash
surged 25.5% in 9mFY11 with market share in volume terms increasing to 69.9% in
Q3FY11 from 66.3% in Q3FY10 as per AC Nielsen. Dabur Honey recorded 12.8% growth
in 9mFY11. Dabur Glucose witnessed strong growth of 42.6% in 9mFY11 and continued
to gain market share. Nutrigo Health supplements launched in current quarter have been
well accepted.
Digestives and baby care
The digestives category grew 13.3% in 9mFY11. Hajmola tablets grew 13% in 9mFY11.
Lal Tail has grown at 14% during 9mFY11 driven by brand restaging in new packs.
Skin care
Gulabari brand grew by 15.7% in 9mFY11 driven by focused marketing initiatives. Fem
portfolio grew 14.3% in 9mFY11 with growth in Fem bleaches at 18.1%.
Home care
Home care grew 33.1% in 9mFY11. Sanifresh grew 23.2% and Odonil 65.9% in 9mFY11
post relaunch. Odonil Pluggy electrical air fresheners witnessed positive consumer
response. Odomos grew 24.2% in 9mFY11.
Foods
Foods delivered a growth of 27.7% in 9mFY11. Real Fruit Juices recorded growth of 29%
in 9mFY11. Activ range grew by 27% in 9mFY11. Hommade brand with culinary range
grew by 33.6%.
II. Consumer health division
CHD registered 13% growth in 9mFY11 and 13.8% in Q3FY11 driven by aggressive
marketing efforts. Pudin Hara 14% in 9mFY11; new Pudin Hara Lemon Fizz launched
to target the acidity segment. Honitus franchise grew by 25% in 9mFY11; Shilajit
registered growth of 22.8% in 9mFY11 driven by consumer activations;
Dashmularishta registered growth of 13.2%. Honitus Day & Night tablets launched
in Q3FY11.
III. International business division
International sales increased 20.3% in 9mFY11 led by strong volume growth —
same currency growth of 25.3% in H1FY11 primarily volume driven. GCC, Egypt,
North Africa, Nigeria and Levant registered strong growth. Key growth categories
were shampoos, hair creams and tooth pastes.
Company Description
Dabur has three divisions in India apart from its international operations. Consumer care
division (CCD) offers a wide range of products in hair care, oral care, health
supplements, digestives and candies, and baby and skin care products, based on
ayurveda. The consumer health division (CHD) includes over-the-counter (OTC)
products, Asavs, and branded ethical, and classic products. The third division, Dabur
Foods Ltd produces fruit juices, cooking pastes, sauces, and items for institutional food
purchases. Dabur is unique among its FMCG peers because of its positioning as an Indian
company whose products are derived from exotic sources such as ancient ayurvedic
texts and natural ingredients such as herbs.
The company has various brand leaders in different market segments - Dabur
Chyawanprash, a health tonic, and Hajmola - a digestive tablet. Real, launched during
1996-97, has also successfully carved its niche in the market.
Investment Theme
Dabur’s broad product portfolio provides the best play on Indian FMCG spend by virtue of
its strong presence in less penetrated and high growth categories. Dabur’s positioning on
the ‘health and wellness’ platform, backed by its ANH (ayurvedic/natural/herbal) image
is very progressive. This, combined with its demonstrated ability to create new
categories and sub-categories, makes it best-placed to capture lifestyle changes-led
growth in the FMCG space. Dabur has also demonstrated its ability to make and
integrate smart acquisitions (Balsara) that complement its product portfolio and thereby
drive inorganic growth. Improvement in margins of foods and international businesses
are expected to result in improvement in margins for the consolidated operations.
Key Risks
A slowdown in rural demand due to lower government spending or a monsoon failure
could impact Dabur’s revenues significantly. The company’s products such as Dabur
Chyawanprash and Dabur Lal Tail are prominently sold in the rural areas, and hence,
depend on growth in rural demand.
Further, Ayush, the Ayurvedic Association of India, has recently declared strict
adherence to ayurvedic norms; the body asked many companies to change the
formulation of Chyawanprash. Any such changes in future could dampen the sales,
especially during the change of formulation, when the product is taken off the shelf.
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