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Dabur India
4QF11: Overall
Disappointing - EW
Quick comment Impact on our view: Dabur reported
consolidated revenue +31%, operating profit +24% and
adjusted PAT +10% – compared with our forecasts of
32%, 14% and 5%, respectively. Domestic business
revenue +14%, operating profit +26% and PAT +19%.
The earnings beat was driven by a sharp cut in ad spend
for the quarter. Near term this may mean greater scope
to control costs but sustained lower media activity vs.
peers is likely to drive stock de-rating, we believe.
Key highlights of the result are:
1) Domestic ad spend to sales down 370 bps to 9.1% -
lowest in 18 quarters. 2) Relatively muted organic
revenue growth of 9.5% in Q4 for the international
business with nearly 1200 bps fall in underlying
operating margins, we believe. 3) Back of the envelope
calculations suggest low single digit OPM for Hobi, its
recent Turkish acquisition. 4) Continuing strong growth
for products on Dabur’s core Ayurvedic/Natural platform.
Other highlights:
(1) Consolidated volumes grew 9.3%, while pricing
added 4.7% for organic domestic revenue growth of
13.9%. (2) Consumer Care division revenue growth of
15.4% in F11 driven by Foods (28%), Skin care (17%),
Home Care (32.5%), Toothpaste (17%), Health
Supplements (23%) and Digestives (9%) (3) Hair oils
grew by 15% in F11, driven by Dabur Amla (Q4 +21.7%,
despite increased competitive activity), Vatika (Q4
+25.9%, price increases taken to offset input inflation)
and Anmol Coconut Oil (+Q4 13.5%); (4) Shampoo
sales continued to disappoint, declining by over 30% in
4QF11, we believe (5) Toothpaste grew by 11.8% for the
quarter. Dabur’s volume market share in toothpaste is
up 90bps yoy to 14.1%. (6) Interestingly, the cash cow
businesses witnessed strong growth during F11 led by
Dabur Chyawanprash (20.1%), Digestives (8.9%) and
Lal Tail (15.4%). (7) Skin care grew by 26.3% during the
quarter (8) Home Care business delivered another
quarter of solid performance with revenue growth of
32.5% in F11 versus 33.1% in 9MF11.
(9) Namaste laboratories, the recently-acquired US-based
company reported higher-than-expected operating
margins of 16% for the quarter. (10) According to the
management, Consumer Health division recorded 13.9%
revenue growth in 4QF11 driven by aggressive marketing
efforts. (11) EBIT margin for the Consumer Health division,
expanded by over 150bps driven by recent price increases
(12) For the standalone business, operating profit margins
expanded by 200bps despite gross margins declining by
over 130bps, as lower ad-spends and effective cost
management offset raw material inflation in the domestic
market. (13) Overall capital employed was largely flat QoQ
Why are we Equal-weight? 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, we believe the
company is likely to have to step up its investment just to
maintain market share. This is likely to impair the company’s
ability to allocate resources towards new product
development and re-launches, driving our earnings
downgrade on the company.
Dabur is now trading at 25x F12e earnings, pretty much in line
with 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.
Price target valuation
We value the company using the base case value driven from
our Residual Income model. We expect an operating profit
CAGR of 18.8% between F2010 and F2013 and terminal
growth of 6%. We apply a Ke of 11.6%.
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 upside 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
4QF11: Overall
Disappointing - EW
Quick comment Impact on our view: Dabur reported
consolidated revenue +31%, operating profit +24% and
adjusted PAT +10% – compared with our forecasts of
32%, 14% and 5%, respectively. Domestic business
revenue +14%, operating profit +26% and PAT +19%.
The earnings beat was driven by a sharp cut in ad spend
for the quarter. Near term this may mean greater scope
to control costs but sustained lower media activity vs.
peers is likely to drive stock de-rating, we believe.
Key highlights of the result are:
1) Domestic ad spend to sales down 370 bps to 9.1% -
lowest in 18 quarters. 2) Relatively muted organic
revenue growth of 9.5% in Q4 for the international
business with nearly 1200 bps fall in underlying
operating margins, we believe. 3) Back of the envelope
calculations suggest low single digit OPM for Hobi, its
recent Turkish acquisition. 4) Continuing strong growth
for products on Dabur’s core Ayurvedic/Natural platform.
Other highlights:
(1) Consolidated volumes grew 9.3%, while pricing
added 4.7% for organic domestic revenue growth of
13.9%. (2) Consumer Care division revenue growth of
15.4% in F11 driven by Foods (28%), Skin care (17%),
Home Care (32.5%), Toothpaste (17%), Health
Supplements (23%) and Digestives (9%) (3) Hair oils
grew by 15% in F11, driven by Dabur Amla (Q4 +21.7%,
despite increased competitive activity), Vatika (Q4
+25.9%, price increases taken to offset input inflation)
and Anmol Coconut Oil (+Q4 13.5%); (4) Shampoo
sales continued to disappoint, declining by over 30% in
4QF11, we believe (5) Toothpaste grew by 11.8% for the
quarter. Dabur’s volume market share in toothpaste is
up 90bps yoy to 14.1%. (6) Interestingly, the cash cow
businesses witnessed strong growth during F11 led by
Lal Tail (15.4%). (7) Skin care grew by 26.3% during the
quarter (8) Home Care business delivered another
quarter of solid performance with revenue growth of
32.5% in F11 versus 33.1% in 9MF11.
(9) Namaste laboratories, the recently-acquired US-based
company reported higher-than-expected operating
margins of 16% for the quarter. (10) According to the
management, Consumer Health division recorded 13.9%
revenue growth in 4QF11 driven by aggressive marketing
efforts. (11) EBIT margin for the Consumer Health division,
expanded by over 150bps driven by recent price increases
(12) For the standalone business, operating profit margins
expanded by 200bps despite gross margins declining by
over 130bps, as lower ad-spends and effective cost
management offset raw material inflation in the domestic
market. (13) Overall capital employed was largely flat QoQ
Why are we Equal-weight? 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, we believe the
company is likely to have to step up its investment just to
maintain market share. This is likely to impair the company’s
ability to allocate resources towards new product
development and re-launches, driving our earnings
downgrade on the company.
Dabur is now trading at 25x F12e earnings, pretty much in line
with 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.
Price target valuation
We value the company using the base case value driven from
our Residual Income model. We expect an operating profit
CAGR of 18.8% between F2010 and F2013 and terminal
growth of 6%. We apply a Ke of 11.6%.
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 upside risks
• Alleviation of cost and competitive pressures driving
significant margin expansion.
• Successful integration of its international businesses
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