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Dabur India Limited
Neutral; DABU.BO, DABUR IN
Near-term relief from stable margins, but medium-term concerns remain
• Relief near term from stable margins…Dabur managed a decent
EBITDA growth of 19% in Q3FY11 as lower ad spend helped offset gross
margin pressure to a large extent. Further better profitability for overseas
business overshadowed subdued EBITDA growth (of 12%) for domestic
business. Recent price hikes and controlled marketing spend would likely
ensure stable margins in coming quarters.
• …..but concerns remain medium term. Tepid volume growth particularly
for domestic personal care business remains a key concern. We believe high
competitive intensity and Dabur's preference for margins (over growth) may
affect its growth prospects in domestic personal care space. Further, we
think Dabur’s rising dependence on overseas operations (with recent
acquisitions of Namaste and Hobi) does not bode well for overall
margin/return profile and will in turn weigh on stock valuations.
• Management Call takeaways. 1) Dabur lowered the bar on domestic
volume growth to c10% from 12-13% seen in FY10, 2) while EBITDA
margins for international business stood at 28% for Q3FY11 which is above
average, normal annual EBITDA margins likely to be c22-23%, 3) Expect
shampoo segment (which reported sales decline of 29% in Q3FY11) to
revive starting Q4FY11, 4) New product launches (particularly in personal
care) are likely to remain low which in turn will help keep A&P spends in
12-13% range, 5) Egypt accounts for 3% of Dabur’s revenues and profits.
While near term situation appears grim given business disruption, this is
unlikely to affect sales in other MENA regions, 6) Don't expect high
inflationary enviornment to impact demand, though downtrading could be a
possibility if inflation sustains for long.
• Maintain Neutral. We have incorporated financials for Namaste in our
estimates starting Q4FY11 and have moderated revenue growth assumptions
for domestic personal care business in line with recent trends. As a result our
EPS estimates for FY11/12E are revised down by 4-5%. Valuations of 28x
FY11E and 23x FY12E appear fair to us. Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dabur India Limited
Neutral; DABU.BO, DABUR IN
Near-term relief from stable margins, but medium-term concerns remain
• Relief near term from stable margins…Dabur managed a decent
EBITDA growth of 19% in Q3FY11 as lower ad spend helped offset gross
margin pressure to a large extent. Further better profitability for overseas
business overshadowed subdued EBITDA growth (of 12%) for domestic
business. Recent price hikes and controlled marketing spend would likely
ensure stable margins in coming quarters.
• …..but concerns remain medium term. Tepid volume growth particularly
for domestic personal care business remains a key concern. We believe high
competitive intensity and Dabur's preference for margins (over growth) may
affect its growth prospects in domestic personal care space. Further, we
think Dabur’s rising dependence on overseas operations (with recent
acquisitions of Namaste and Hobi) does not bode well for overall
margin/return profile and will in turn weigh on stock valuations.
• Management Call takeaways. 1) Dabur lowered the bar on domestic
volume growth to c10% from 12-13% seen in FY10, 2) while EBITDA
margins for international business stood at 28% for Q3FY11 which is above
average, normal annual EBITDA margins likely to be c22-23%, 3) Expect
shampoo segment (which reported sales decline of 29% in Q3FY11) to
revive starting Q4FY11, 4) New product launches (particularly in personal
care) are likely to remain low which in turn will help keep A&P spends in
12-13% range, 5) Egypt accounts for 3% of Dabur’s revenues and profits.
While near term situation appears grim given business disruption, this is
unlikely to affect sales in other MENA regions, 6) Don't expect high
inflationary enviornment to impact demand, though downtrading could be a
possibility if inflation sustains for long.
• Maintain Neutral. We have incorporated financials for Namaste in our
estimates starting Q4FY11 and have moderated revenue growth assumptions
for domestic personal care business in line with recent trends. As a result our
EPS estimates for FY11/12E are revised down by 4-5%. Valuations of 28x
FY11E and 23x FY12E appear fair to us. Neutral.
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