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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��\\Dabur India (DABU.BO, Rs103, EW, PT Rs105)
Investment Thesis: Downgrade to EW
• While we continue to believe that Dabur’s niche
positioning in the herbal/natural/ayurvedic products space
leaves the company better placed to manage competitive
pressures vs. peers, sustained cost pressures temper our
positive stance on the company
• It would have to step up investments to maintain market
share as competitive intensity in its mainstream categories
is escalating
• Dabur may face initial difficulties in integrating and
digesting recent acquisitions
Conclusion
The key strength of Dabur over the years has been its ability to
launch highly differentiated product offerings across its
product portfolio. However, in the current environment of
intense cost and competitive pressures amidst limited pricing
power, the company will likely have to step up investments
just to maintain market share, in our view. This will likely
impair the company’s ability to allocate resources towards
new product development and re-launches, driving our
earnings downgrade on the company.
Darbur is now trading at 26x F12 earnings, similar to sector
multiples, even as it fights multiple battles in its key growth
categories: 1) Foods business – HUL’s launch of fruit juice
and soya based beverages and Coca-Cola’s Minute Maid
brand extension to fruit juices; 2) Shampoo – According to our
channel checks P&G is offering Pantene sachets now at Re1
(vs. Rs1.5 earlier); and 3) Skincare – Garnier launched Light
Ultra, a fairness cream designed and developed in India.
While increased investments in emerging markets help Dabur
build scale and long-term growth drivers they also increase
business volatility (leverage, foreign exchange, etc.), near
term. Markets may be underestimating integration risk from
the recent acquisition of Hobi in Turkey and Namaste group in
the US and Africa, and consequent potential adverse impact
on near-term earnings progression for Dabur.
Investment Positives
Well-balanced diversified portfolio catering to both rural
and urban markets
Niche position in the herbal/ayurvedic/natural space
Investment Concerns
Risk of managing a fragmented portfolio with a number of
small brands and product categories
Growth in dominant cash-cow categories may slow due to
relative underinvestment as Dabur has focused on
funding its newer businesses amid high competitive
intensity
Integration risk in international business
F4Q11 – Margin squeeze: We expect Dabur to report
revenue growth of 32%, driven by around 16-17% organic
revenue growth and consolidation of its recent acquisitions of
Hobi and Namaste group. Input cost headwinds amid
sustained competitive pressures in categories like oral care,
shampoos and skin care, will likely impact their operating
profit in the short term, we believe. We expect operating profit
margins for 4QF11 to decline 280bps driving an adjusted PAT
growth of 5%.
Investment Thesis
• Dabur will likely have to step up
investments across categories to
maintain market share, in our view.
This may impair the company’s ability
to allocate resources towards new
product development and re-launches.
• Markets may be underestimating
integration risk from recent
acquisitions and consequent potential
adverse impact on near term earnings
progression.
• Darbur is trading at 26x F12 earnings,
similar to sector multiples even as it
fights multiple battles in its key growth
categories i.e. Foods, Hair and Skin.
Key Value Drivers
• Ability to fuel growth in its cash-cow
categories
• Appropriate investment in and
successful building of growth
categories
• Integration of its recent acquisitions
and new acquisitions
Potential Catalysts
• Successful launch of differentiated
products in skincare and Healthcare
• Continued growth in cash-cow
categories
Key downside risks
• Significant rise in cost pressures
• Failure to integrate recent acquisitions
• Large value-destroying acquisition
• Failure to develop differentiated
products
• Predatory price competition
Key downside risks
• Alleviation of cost and competitive
pressures driving significant margin
expansion.
• Successful integration of its
international businesses
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��\\Dabur India (DABU.BO, Rs103, EW, PT Rs105)
Investment Thesis: Downgrade to EW
• While we continue to believe that Dabur’s niche
positioning in the herbal/natural/ayurvedic products space
leaves the company better placed to manage competitive
pressures vs. peers, sustained cost pressures temper our
positive stance on the company
• It would have to step up investments to maintain market
share as competitive intensity in its mainstream categories
is escalating
• Dabur may face initial difficulties in integrating and
digesting recent acquisitions
Conclusion
The key strength of Dabur over the years has been its ability to
launch highly differentiated product offerings across its
product portfolio. However, in the current environment of
intense cost and competitive pressures amidst limited pricing
power, the company will likely have to step up investments
just to maintain market share, in our view. This will likely
impair the company’s ability to allocate resources towards
new product development and re-launches, driving our
earnings downgrade on the company.
Darbur is now trading at 26x F12 earnings, similar to sector
multiples, even as it fights multiple battles in its key growth
categories: 1) Foods business – HUL’s launch of fruit juice
and soya based beverages and Coca-Cola’s Minute Maid
brand extension to fruit juices; 2) Shampoo – According to our
channel checks P&G is offering Pantene sachets now at Re1
(vs. Rs1.5 earlier); and 3) Skincare – Garnier launched Light
Ultra, a fairness cream designed and developed in India.
While increased investments in emerging markets help Dabur
build scale and long-term growth drivers they also increase
business volatility (leverage, foreign exchange, etc.), near
term. Markets may be underestimating integration risk from
the recent acquisition of Hobi in Turkey and Namaste group in
the US and Africa, and consequent potential adverse impact
on near-term earnings progression for Dabur.
Investment Positives
Well-balanced diversified portfolio catering to both rural
and urban markets
Niche position in the herbal/ayurvedic/natural space
Investment Concerns
Risk of managing a fragmented portfolio with a number of
small brands and product categories
Growth in dominant cash-cow categories may slow due to
relative underinvestment as Dabur has focused on
funding its newer businesses amid high competitive
intensity
Integration risk in international business
F4Q11 – Margin squeeze: We expect Dabur to report
revenue growth of 32%, driven by around 16-17% organic
revenue growth and consolidation of its recent acquisitions of
Hobi and Namaste group. Input cost headwinds amid
sustained competitive pressures in categories like oral care,
shampoos and skin care, will likely impact their operating
profit in the short term, we believe. We expect operating profit
margins for 4QF11 to decline 280bps driving an adjusted PAT
growth of 5%.
Investment Thesis
• Dabur will likely have to step up
investments across categories to
maintain market share, in our view.
This may impair the company’s ability
to allocate resources towards new
product development and re-launches.
• Markets may be underestimating
integration risk from recent
acquisitions and consequent potential
adverse impact on near term earnings
progression.
similar to sector multiples even as it
fights multiple battles in its key growth
categories i.e. Foods, Hair and Skin.
Key Value Drivers
• Ability to fuel growth in its cash-cow
categories
• Appropriate investment in and
successful building of growth
categories
• Integration of its recent acquisitions
and new acquisitions
Potential Catalysts
• Successful launch of differentiated
products in skincare and Healthcare
• Continued growth in cash-cow
categories
Key downside risks
• Significant rise in cost pressures
• Failure to integrate recent acquisitions
• Large value-destroying acquisition
• Failure to develop differentiated
products
• Predatory price competition
Key downside risks
• Alleviation of cost and competitive
pressures driving significant margin
expansion.
• Successful integration of its
international businesses
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