Hold Dabur India Lower ad spend helps maintain margin; Anand Rathi

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Dabur India
Lower ad spend helps maintain margin; reiterate Hold
Dabur reported healthy 3QFY11 results, with revenue and net
profit growing 16% and 12% respectively. Though we expect 21%
earnings CAGR over FY10-13e, the stock offers little upside at
current valuations, in our view. We maintain Hold.

 Healthy revenue growth. Dabur reported revenue growth of
16.6% yoy, with volume growing 10%. Consumer Care reported
revenue growth of 15% yoy, whereas International Business’
revenue grew 20.3% yoy.
 Segmental performance – Mixed bag. Oral Care reported 9.3%
revenue growth, while Shampoos saw a 29.8% drop. Foods
registered revenue growth of 42% and hair oils ~15% growth.
Consumer health division revenue grew 14%. Despite Hajmola’s
relaunch, the digestives segment saw 11% revenue growth.
 Lower ad spend helps retain margin. The company’s EBITDA
margin improved 30bps yoy. Though ad spend (as a percentage of
net sales) was 210bps lower, raw material costs (as a percentage of
net sales) was 300bps higher. Absence of new
launches/relaunches resulted in lower ad spend. Net profit was up
12% yoy, despite higher income tax.
 Valuation and risks. We value the stock at a price target of `110,
based on target PE of 25x FY12e earnings, which is at 50%
premium to the 12-month forward Nifty PE. Upside risk: higher
raw material prices; downside risk: lower competition.