Dabur’s Q3FY13 numbers were in line with our estimates with domestic
volume rising 9.5% YoY (on base of 8% versus 9% growth in Q2FY13 on
base of 5%). Rural (up 20% YoY) and modern trade (up 30% YoY, unlike
HUL) remain strong. Key positives were: (i) EBITDA margin expansion
after six quarters; (ii) strong growth of ~30% YoY each in shampoos and
home care; (iii) healthy growth in foods (22.1% YoY) led by 29% YoY surge
in Real; and (iv) robust growth in skin care (15.7% YoY) led by Fem surging
20% YoY. Key negatives were: (i) decline in digestives (down 5.4% YoY on
high base and price hike in Hajmola to restore brand profitability); and (ii)
continued slowdown in Namaste business (corrective steps taken and
likely to revive in FY14E). We like Dabur’s product innovation (launch of
new juice variants, soft launch of coconut water, car & gel air fresheners)
and aggression in ad spends. Maintain ‘BUY’.
This report also contains Q3FY13 conference call highlights.
EBITDA margin expands after six quarters
Domestic business grew 13.6% YoY (14.3% growth in domestic FMCG business;
slowdown in export of guar). At the consolidated level, gross margin expanded 219bps
YoY, leading to 93bps YoY EBITDA margin expansion despite higher ad spends (up
76bps YoY) and staff costs (up 48bps YoY). PAT grew 22.2% YoY as finance cost dipped
57.5% YoY. Modern trade channels’ sales grew 30% YoY (unlike HUL, which reported
volume pressure due to slowdown in this channel).
Healthy growth in foods, home and personal care
Hair care grew 13.9% YoY, home care surged 30.5% YoY, oral care recovered with
13.6% YoY growth, health supplements surged 12% YoY, skin care grew 15.7% YoY and
OTC & ethicals grew 15.6% YoY. International business grew 22.4% YoY organically.
Outlook and valuations: Positive; maintain ‘BUY’
We like Dabur’s aggression in ad spends, product innovation, investment in existing
product range and in distribution expansion. At CMP the stock is trading at P/E of 30.1x
and 25.3x for FY13E and FY14E, respectively. We maintain ‘BUY’ and rate the
stock ‘Sector Outperformer’ on relative return basis.
Q3FY13 Conference call | Key Takeaways
• Volume growth: Dabur posted 9.5% YoY volume growth in domestic business in
Q3FY13 (9.0%, 11.6% and 9.5% YoY for Q2FY13, Q1FY13 and Q4FY12, respectively) on a
high base of 8% YoY growth in Q3FY12. The company has guided for a volume growth
of 8-12% going ahead. Rural demand is doing better than urban.
• Rural growth: Dabur posted 20% YoY growth in rural markets (outperforming urban
growth).
• Modern trade: Modern trade did extremely well and grew 30% YoY (2x domestic
business). Growth was largely volume led.
• Domestic performance: Domestic business contributed 71% to overall sales, up 14.3%
YoY (growth impacted due to CSD issue), led by 9.5% volume growth. CCB and foods
contributed 83% and 14%, respectively, to domestic revenue.
• Health supplements: Health supplements grew 12% YoY led by strong growth in Dabur
Honey. Dabur Chyawanprash registered a near double digit growth, but was impacted
by lower offtake in CSD channel.
• Digestives: This business’ growth declined 5.4% YoY due to high base and price hikes in
Hajmola to restore brand profitability. Pudin Hara reported strong double digit growth
during the quarter.
• OTC and ethicals: This business grew 15.6% YoY. OTC portfolio posted 16% YoY growth
with Lal Tail posting strong growth. Ethicals grew 19% YoY. Q3FY13 posted strong
growth on back of a small base. However, the base effect has now normalised. Thirty
Plus (re-launched during Q2FY13) also saw good initial response from consumers, but it
is too early to form a trend.
• Hair oils: This segment posted 11.8% YoY growth which was largely driven by volume
growth. Perfumed hair oil category grew 14.9% in Q3FY13 despite lower offtake in the
CSD channel. Ex-CSD, growth was 23% YoY. Vatika (coconut oil) sales were flattish due
to high price differential to competitors.
• Shampoos: Shampoos continued on revival track, clocking growth of 29.6% YoY. The
company’s rural initiatives of distribution expansion helped post strong growth.
Shampoos are now available in 3.5mn outlets. Also, Vatika shampoo relaunch boosted
momentum (on the back of strong herbal positioning).
• Home care: Home care surged 30.5% YoY with Odomos reporting strong growth due to
marketing and media initiatives. Odonil grew in double digits YoY and Odonil Gel was
introduced in a few markets in Q3FY13. Sanifresh also posted good growth YoY.
Management believes this high growth may not be sustainable in the long run due to
the base effect.
• Skin care: Skin care grew 15.7% YoY. Dabur Gulabari (largely winter product) posted
good performance with double digit growth. Fem portfolio saw the relaunch of Fem
Bleach and launch of Turmeric Herbal Bleach. Dabur also launched Gulabari Pearl
Fairness Moisturizer with saffron and turmeric in Q3FY13.
• Oral care: Oral care grew 13.6% YoY. Premium products Dabur Red Toothpaste and
Meswak performed well, growing 25% plus and gained market share. However, Babool
growth was flattish YoY. The company has not aggressively marketed Babool compared
to its premium products, but will concentrate on improving profitability from this
product. Dabur Red Toothpowder performed well, growing 14.6% YoY (price led, no
volume growth). The company may enter the sensitive category as it has huge growth
potentials.
• Foods: Foods business posted good growth of 22.1% YoY with Real growing a healthy
29% YoY and gained market share (at all time high). The company introduced Banana
Strawberry and Green Apple Punch variants of Real. Food margin dipped 709bps in the
standalone business which could be attributed to: (1) forex impact; and (2) 1% CVD
duty imposed by the government. Culinary portfolio growth was flattish YoY.
• H&B stores: The retail business has not been profitable and management expects it to
bleed money even in FY14. But losses will be limited.
• International business: International business (IB) grew 9% YoY. Ex-Namaste, the
organic business grew 22.4% YoY. Organic volume growth stood at 16% YoY and
including Namaste, it stood at 4% YoY.
Namaste business remained under pressure due to distribution restructuring in Africa
and changeover in branding in the US. Sales will revive in US markets post two quarters.
Growth in Nigeria business will revive from the next quarter. South Africa is back on
track. The company has taken several measures to turnaround the Namaste business by
putting in new resources and personnel in management. Overall, Namaste will see
revival in growth from FY14.
Hobi business performed well with 24% YoY growth led by investment in brands.
Egypt grew 15% YoY in Q3FY13. However, the situation in the country remains under
stress. Nigeria saw low growth YoY in Q3FY13 due to local unrest.
• Gross margin: Gross margin expanded 219bps YoY to 51.4%. Domestic business margin
remained flat YoY due to pressure from rupee depreciation and high prices of honey
and sugar. International business’ gross margins expanded 500bps YoY. Management
expects gross margin to remain stable.
• A&P: Dabur will be looking to reduce its A&P spends by 50-100bps. A&P remains high in
oversea business and management will first try to reduce A&P in these markets.
• CSD: CSD business continued to decline. 37% of the CSD business happens in Q3FY13
for Dabur (mainly for Chyawanprash).
• Debt: Dabur is net cash positive. The company does not have debt in the domestic
business. Hence, cash generated from international business will be utilised to pay off
debt.
• Tax rate: Tax rate is likely to be ~20% for FY13E. The company will follow MAT for the
next 4-5 years.
• Interest paid: The interest paid has been significantly lower primarily due to higher
impact of exchange rate in Q3FY12.
Outlook and valuations: Positive; Maintain ‘BUY’
We like Dabur’s renewed aggression in ad spends, product innovation (Thirty plus, soft
launches in coconut water, car fresheners and gel air fresheners) and investment in existing
product range. Dabur is investing aggressively in distribution expansion; HUL had done
similar distribution expansion two years back which led to improvement in volume growth
and significant re-rating of the stock. We believe Dabur to be on a similar path. The stock is
trading at P/E of 30.1x and 25.3x on FY13E and FY14E, respectively. We maintain FY14 target
multiple of 29x arriving at target price of INR150. We maintain ‘BUY’ and rate the stock
‘Sector Outperformer’ on relative return basis.
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