Dabur India::Takeaways Motilal Oswal Annual Global Investor Conferences

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Dabur India
Key Takeaways
Volume growth under pressure; luxury and premium products doing well
 Dabur India's volume growth has declined in the past few quarters, as consumers
are yet to adjust fully to higher prices and high food inflation.
 Premium and luxury products are witnessing continued buoyancy in demand, as
necessities do not add up to a very significant part of the target audience's income.
Consequently, categories like processed foods, juices, air care and deodorants are
maintaining high growth rates.
 Demand in the MENA region is slowly recovering; however, Levant countries will
take some time to recover.
Select inputs turning soft; margin recovery likely in 2HFY12
 Input cost pressure is intense in materials like LLP, packaging, honey, spices, etc.
 Oral care margins have been impacted, as Colgate has been very selective in price
increases, making price increases a difficult proposition for Dabur.
 Categories like glucose and hajmola have also seen margin pressure.
 Dabur has strong pricing power in amla and juices, which have seen price hikes in
the recent past. Softening input cost could enable margin improvement from 2HFY12.
Namaste integration on track; high visibility of growth
 Dabur is very positive on the growth opportunity for Namaste in its niche segment of
ethnic products for people of African origin.
 It is starting a new facility in Nigeria by 4Q and another facility in South Africa in
FY13 to have pan Africa presence.
 The proportion of non-USA sales has increased from 21% to 30% in the last five
years; Dabur plans to significantly increase the proportion of non-USA sales to 60-
70% in the coming 5-7 years.
MENA region pressures exist; recovery likely from 3Q
 MENA region has seen poor sales growth and margin pressure due to unrest.
 Restrictions on pricing in Bahrain, Oman, etc continue to impact performance,
although these regions contribute just 5% of sales.
 Libya, Syria and Yemen sales are under pressure and should recover from 3Q.
Valuation and view
 We remain concerned on long-term sustainability in the shampoo business. Sales
growth and margins in amla oil could take a hit due to Marico's increasing aggression
in the value-added hair oil space.
 We believe that increasing pressure in key domestic businesses like hair oils,
shampoos and oral care will result in Dabur becoming more dependent on
international acquisitions.
 The stock trades at 28.4x FY12E of INR3.8 and 23.8x FY13E EPS of INR4.5. Neutral.