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We initiate coverage on Dabur with an Outperform rating
and a 12-month price target of Rs120.
In the past 12 months, Dabur has underperformed the
FMCG index by 17% and at FY13 P/E of 22.7x, it is for
the first time in 20 months at a discount to the sector.
Diverse product mix, monopoly in niche categories and
good presence in high-growth categories would ensure
steady and sustainable growth, in our view.
Dip in crude, price hikes, political stability in MENA and
expansion of Namaste could boost profits. We expect
sales & PAT CAGR of 19.6% & 19.4% over FY11-14E
Diverse & balanced portfolio, key to Dabur’s success.
Dabur’s domestic top line is spread over >15 categories,
with only 3 categories contributing to >10% of sales. Nondependence on one category implies resilient sales growth
and sustainable margins. Its portfolio is also well balanced –
in niche moderate growth categories (like chawanprash) it is
the market leader with pricing power where as in large and
fast-growing categories (like oral care) it is the challenger
and can maintain healthy growth by growing with the
category and nibbling of share. We expect standalone sales
and net profit CAGR of 15.5% and 16.1% over FY11-14E.
International business growth better. Dabur’s int’l sales
growth has been ahead of domestic sales, with contribution
to sales increasing from 11% in FY06 to 21.7% in FY11 and
is expected to increase further to 27% in FY12E (with
acquisitions in FY11). Unrest in MENA led to lower organic
sales growth of 17.6% in FY11. With stabilisation of the
political situation in MENA and extension of Namaste
products in Africa, we expect sales growth to bounce back.
Margin improvement post FY12. Given higher input costs,
competitive issues, higher ad spend and lower margin in int’l
acquisitions, we estimate conso. EBITDA margin to decline
by 170bps yoy to 17.1% in FY12. However, we expect
margin to improve to 18.2% by FY14E with softening input
costs, price hikes and increase in Namaste margins.
Valuation cheaper than peers. The stock trades at oneyear-forward P/E of 25.5x, in line with historical valuations.
In contrast, the sector is trading at 26x, 15% premium to
historical. Also, Dabur is currently trading at a discount to
the FMCG sector vis-à-vis ~10% premium in the past 20
months. We value Dabur at a target P/E of 24x with a 12-
month PT of Rs120/sh. Risks include disruptive competition,
instability in MENA, categories losing relevance.
Investment argument and valuation
Diverse and well-balanced product mix to ensure steady growth
Wide product-portfolio reduces dependence on any single category
Unlike other FMCG companies, where the bulk of sales come from one or two categories,
Dabur’s portfolio is spread across more than a dozen FMCG categories, with only 3 categories
contributing >10% of consolidated sales (Hair oil at ~16%, Oral care at ~11% and Foods at
~10%). Such diversity provides Dabur a unique strength – non-dependence on any singlecategory for overall growth. This is evident from the steady and consistent 15% annual sales
growth in Dabur’s domestic business (without considering acquisitions) in the past five years,
despite poor performance in select categories in some years. For example, standalone sales in
FY11 grew a healthy 14.3% despite a sharp decline of 22.3% in shampoo sales. Rapid expansion
in international footprint (with some help from international acquisitions) has helped Dabur post
higher overall sales CAGR of 18.5% over FY06-11
Well-balanced portfolio with leadership in niche/ sub-categories
Dabur’s product portfolio is well balanced – almost 80% of its sales come from moderate to highgrowth categories. Importantly, in most of the low-growth categories it has a monopolistic
presence and thus is able to maintain higher levels of profitability. High-growth categories where
Dabur is present are skin care, shampoos, juices and glucose powders. The majority of its sales
come from mid-teens growth categories/ businesses like hair oils, toothpastes, international
business and consumer healthcare products.
In terms of market leadership, we note that c.60-65% of Dabur’s domestic turnover comes from
categories where it is the #1 player. These categories include various niche/ sub-categories like
chyawanprash, digestives, honey, skin bleaches, juices, amla oil, rose water, mosquito repellent
creams, air fresheners and ayurvedic healthcare products. It offers Dabur relatively better pricing
power in these categories.
Innovations and successful acquisitions has aided growth
Regular activation across categories through launch of new variants or packaging innovations
has aided sales growth. Some examples of growth through continuous innovations are - i) launch
of mango and orange variant of chyawanprash in early FY11 led to over 20% sales growth in this
category as compared to average 9% annually during FY08-10 and ii) packaging innovations in
Odonil and introduction of pluggy variant at the end of FY10 enabled 32.5% growth in home care
in FY11 as compared to average 8% annually during FY08-10.
Successful domestic acquisitions − oral & home care company Balsara in 2005 and skin care
player Fem Care Pharma in 2008/09 − has helped Dabur strengthen its product portfolio and
accelerate domestic business growth.
Dabur has also forayed into the retail business in FY08 by opening stores selling beauty products.
Though the business is currently sub scale and loss-making, Dabur continues to invest (in
restricted measure) in the venture and scale up presence
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We initiate coverage on Dabur with an Outperform rating
and a 12-month price target of Rs120.
In the past 12 months, Dabur has underperformed the
FMCG index by 17% and at FY13 P/E of 22.7x, it is for
the first time in 20 months at a discount to the sector.
Diverse product mix, monopoly in niche categories and
good presence in high-growth categories would ensure
steady and sustainable growth, in our view.
Dip in crude, price hikes, political stability in MENA and
expansion of Namaste could boost profits. We expect
sales & PAT CAGR of 19.6% & 19.4% over FY11-14E
Diverse & balanced portfolio, key to Dabur’s success.
Dabur’s domestic top line is spread over >15 categories,
with only 3 categories contributing to >10% of sales. Nondependence on one category implies resilient sales growth
and sustainable margins. Its portfolio is also well balanced –
in niche moderate growth categories (like chawanprash) it is
the market leader with pricing power where as in large and
fast-growing categories (like oral care) it is the challenger
and can maintain healthy growth by growing with the
category and nibbling of share. We expect standalone sales
and net profit CAGR of 15.5% and 16.1% over FY11-14E.
International business growth better. Dabur’s int’l sales
growth has been ahead of domestic sales, with contribution
to sales increasing from 11% in FY06 to 21.7% in FY11 and
is expected to increase further to 27% in FY12E (with
acquisitions in FY11). Unrest in MENA led to lower organic
sales growth of 17.6% in FY11. With stabilisation of the
political situation in MENA and extension of Namaste
products in Africa, we expect sales growth to bounce back.
Margin improvement post FY12. Given higher input costs,
competitive issues, higher ad spend and lower margin in int’l
acquisitions, we estimate conso. EBITDA margin to decline
by 170bps yoy to 17.1% in FY12. However, we expect
margin to improve to 18.2% by FY14E with softening input
costs, price hikes and increase in Namaste margins.
Valuation cheaper than peers. The stock trades at oneyear-forward P/E of 25.5x, in line with historical valuations.
In contrast, the sector is trading at 26x, 15% premium to
historical. Also, Dabur is currently trading at a discount to
the FMCG sector vis-à-vis ~10% premium in the past 20
months. We value Dabur at a target P/E of 24x with a 12-
month PT of Rs120/sh. Risks include disruptive competition,
instability in MENA, categories losing relevance.
Investment argument and valuation
Diverse and well-balanced product mix to ensure steady growth
Wide product-portfolio reduces dependence on any single category
Unlike other FMCG companies, where the bulk of sales come from one or two categories,
Dabur’s portfolio is spread across more than a dozen FMCG categories, with only 3 categories
contributing >10% of consolidated sales (Hair oil at ~16%, Oral care at ~11% and Foods at
~10%). Such diversity provides Dabur a unique strength – non-dependence on any singlecategory for overall growth. This is evident from the steady and consistent 15% annual sales
growth in Dabur’s domestic business (without considering acquisitions) in the past five years,
despite poor performance in select categories in some years. For example, standalone sales in
FY11 grew a healthy 14.3% despite a sharp decline of 22.3% in shampoo sales. Rapid expansion
in international footprint (with some help from international acquisitions) has helped Dabur post
higher overall sales CAGR of 18.5% over FY06-11
Well-balanced portfolio with leadership in niche/ sub-categories
Dabur’s product portfolio is well balanced – almost 80% of its sales come from moderate to highgrowth categories. Importantly, in most of the low-growth categories it has a monopolistic
presence and thus is able to maintain higher levels of profitability. High-growth categories where
Dabur is present are skin care, shampoos, juices and glucose powders. The majority of its sales
come from mid-teens growth categories/ businesses like hair oils, toothpastes, international
business and consumer healthcare products.
In terms of market leadership, we note that c.60-65% of Dabur’s domestic turnover comes from
categories where it is the #1 player. These categories include various niche/ sub-categories like
chyawanprash, digestives, honey, skin bleaches, juices, amla oil, rose water, mosquito repellent
creams, air fresheners and ayurvedic healthcare products. It offers Dabur relatively better pricing
power in these categories.
Innovations and successful acquisitions has aided growth
Regular activation across categories through launch of new variants or packaging innovations
has aided sales growth. Some examples of growth through continuous innovations are - i) launch
of mango and orange variant of chyawanprash in early FY11 led to over 20% sales growth in this
category as compared to average 9% annually during FY08-10 and ii) packaging innovations in
Odonil and introduction of pluggy variant at the end of FY10 enabled 32.5% growth in home care
in FY11 as compared to average 8% annually during FY08-10.
Successful domestic acquisitions − oral & home care company Balsara in 2005 and skin care
player Fem Care Pharma in 2008/09 − has helped Dabur strengthen its product portfolio and
accelerate domestic business growth.
Dabur has also forayed into the retail business in FY08 by opening stores selling beauty products.
Though the business is currently sub scale and loss-making, Dabur continues to invest (in
restricted measure) in the venture and scale up presence
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