Motilal Oswal Securities Reports on Dabur

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 Dabur’s (DABUR) 2QFY15 results were slightly below estimates, with consolidated

sales growth of 10.4% to INR19.3b (est. INR20.2b). EBITDA margin contracted

60bp YoY to 17.9% (est. 18.7%), while EBITDA grew 6.6% YoY at INR3.5b (est.

INR3.8b). Recurring PAT grew 15.1% to INR2.9b (est. INR2.9b).

 Domestic business volume growth at 8.7% was driven by Foods (up 29%, 11% of

sales), Hair Care (up 13.9%, 14% of sales), Health Supplements (up 10.2%, 10% of

sales) and Home Care (up 10.2%, 5% of sales). Oral Care (9% of sales) continued to

post subdued performance and grew 8.1%. International business registered 6.6%

sales growth (8.3% constant currency growth).

 EBITDA margin down 60bp YoY: Gross margin contracted 60bp YoY to 53%. RM

price correction benefit to reflect in gross margin in 3QFY15, as per management.

Increase in staff costs (up 40bp YoY to 9.5%) and ad spends (up 10bp YoY to

13.2%) completely offset the savings in other expenses (down 50bp YoY to 12.4%).

EBITDA margin contracted 60bp YoY to 17.9% (est. 18.7%), while EBITDA grew

6.6% YoY to INR3.5b (est. INR3.8b). Higher other income (up 58.5% YoY to

INR444m), lower interest expense (down 49% YoY to INR102m) and tax rate

savings (down 120bp YoY to 17.6%) aided recurring PAT growth of 15.1% to

INR2.9b (est. INR2.9b).

 Management call highlights: a) demand recovery in urban India is not as fast as

expected, b) volume growth guidance of 8-10%, c) A&P to be in 13-14% band with

benign margin outlook, d) tax rate for FY15 to be at 1HFY15 run rate.

 Valuation and view: DABUR’s continued and strong volume growth delivery in a

challenging macro backdrop is a reflection of its balanced portfolio and recent

investments behind distribution expansion, in our view. We have largely retained

our estimates as we incorporate management’s guidance of back-ended recovery.

However, valuations at 37.8x FY15E and 32.5x FY16E EPS are rich, in our view. We

maintain a Neutral rating with an unchanged target price of INR200.