Dabur -Motilal Oswal research report

 Dabur's 3QFY13 results were largely in line with our estimates. Consol net
sales grew at 12.3% YoY to INR16.34b (est INR16.3b), EBITDA grew 19% YoY to
INR2.69b (est INR2.69b), while Adj. PAT was higher than est at INR2.1b (est
INR2.01b) due to higher-than-estimated other income and lower tax rate.
 Gross margin expanded 220bp to 51.2% due to softening in key input costs.
EBITDA margin expanded 90bp to 16.5% as ad expenses increased 80bp.
 Domestic sales grew 13.6% to INR11.9b, with underlying volume growth at
9.5%. Gross margin remained flat at 46.2%, while EBITDA margin contracted
50bp to 16.5% due to 60bp increase in ad spend. Steep increase in tax rate
(450bp) to 20.4% curtailed Adj PAT growth at 7.5% to INR1.5b.
 International business grew 9%, while organic business grew 22.4% (constant
currency growth at 16%). Reported growth is lower at 9% as Namaste business
was impacted by restructuring in Africa and re-branding in the US. Correction
in input costs led to significant gross margin expansion in international
business (gross margin up 860bp YoY in consolidated-standalone entity).
 Dabur's consistent volume growth is a reflection of its investments behind
brands and distribution. Recovery in shampoo, oral care and hair care is a key
positive, while deterioration in international business though disappointing,
was a one-off. We expect Dabur to get tailwind benefits from its recent
distribution expansion initiatives and estimate PAT CAGR of 22% for FY12-
15E, one of the best in our staples universe.
 Dabur trades at 23.8x FY14E and 20x FY15E EPS and has underperformed the
BSE FMCG index by 35% in the past 24 months. We expect the valuation gap
to narrow as a) volume growth sustains in 8-10% band driven by recovery in
core categories and b) margins improve led by international business division.
We value the stock at 24x PE (earlier 23x), roll over to FY15E and arrive at a
revised target price of INR156. Upgrade to Buy with a potential 20% upside.
Slowdown in rural FMCG growth and spike in input costs are key concerns.

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