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UBS Investment Research
Dabur India Ltd.
S haky business model
Muted volume growth with new product launches postponed
We remain Neutral on Dabur India (Dabur) as we believe there are no near term
catalysts for the share price. Faced with a high input cost environment,
management has indicated that most new product launches have been postponed to
calendar year 2012. Management has also guided for flattish margins in the current
fiscal year.
ROE up versus FY00, but has declined lately
ROE rose from 24% in FY00 to 40% in FY11 due to improvements in net income
margins and leverage. However, over the past four years ROE has fallen as net
income margins have stagnated and asset turnover has declined.
International acquisitions and domestic market competition
Given the high competitive intensity in the personal care business in India, we
expect it to be tougher for Dabur to acquire market share in the consumer care
division. We believe the company will focus more on its healthcare (CHD), OTC
and international businesses over the next two to three years.
Valuation: maintain Neutral rating and price target of Rs120.00
We maintain our Neutral rating and our price target of Rs120.00. We derive our
price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers using UBS’s VCAM tool. We assume a WACC of 11%.
Dabur India Ltd.
Dabur is the market leader in consumer products based on the traditional Indian
ayurvedic herbal system of medicine. It has evolved to become one of the largest
Indian-owned consumer goods companies. It has a fairly well-diversified
product profile. It operates in the following consumer product categories: hair
oil, health supplements (Chyawanprash and digestives), oral care, shampoos,
baby care, skin care, home care, and foods (juices and cooking pastes).
Statement of Risk
We believe the key risk to Dabur is the limited appeal of traditional Ayurvedic
products as consumer lifestyles change. Another risk is low tax rates because of
factory locations in areas that are designated as tax benefit zones; any change in
this law could affect earnings, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Dabur India Ltd.
S haky business model
Muted volume growth with new product launches postponed
We remain Neutral on Dabur India (Dabur) as we believe there are no near term
catalysts for the share price. Faced with a high input cost environment,
management has indicated that most new product launches have been postponed to
calendar year 2012. Management has also guided for flattish margins in the current
fiscal year.
ROE up versus FY00, but has declined lately
ROE rose from 24% in FY00 to 40% in FY11 due to improvements in net income
margins and leverage. However, over the past four years ROE has fallen as net
income margins have stagnated and asset turnover has declined.
International acquisitions and domestic market competition
Given the high competitive intensity in the personal care business in India, we
expect it to be tougher for Dabur to acquire market share in the consumer care
division. We believe the company will focus more on its healthcare (CHD), OTC
and international businesses over the next two to three years.
Valuation: maintain Neutral rating and price target of Rs120.00
We maintain our Neutral rating and our price target of Rs120.00. We derive our
price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers using UBS’s VCAM tool. We assume a WACC of 11%.
Dabur India Ltd.
Dabur is the market leader in consumer products based on the traditional Indian
ayurvedic herbal system of medicine. It has evolved to become one of the largest
Indian-owned consumer goods companies. It has a fairly well-diversified
product profile. It operates in the following consumer product categories: hair
oil, health supplements (Chyawanprash and digestives), oral care, shampoos,
baby care, skin care, home care, and foods (juices and cooking pastes).
Statement of Risk
We believe the key risk to Dabur is the limited appeal of traditional Ayurvedic
products as consumer lifestyles change. Another risk is low tax rates because of
factory locations in areas that are designated as tax benefit zones; any change in
this law could affect earnings, in our view.
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