Volume growth remains strong… • Dabur India’s Q3FY15 results :: ICICI Securities, report

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Volume growth remains strong… • Dabur India’s Q3FY15 results were below our estimate on sales front with 8.9% growth to | 2073.6 crore (I-direct estimate: | 2196.4 crore) on the back of slower growth of 3.6% in international business. However, domestic volume growth remains healthy at 7.4% led by strong growth in health supplement, home care & oral care • Skin care sales growth was impacted by loss in sales due to fire in its Baddi plant. Foods business growth slowed down to 11.8% from ~20% in last four quarters mainly due to high base affect • Operating margins improved 156 bps to 16.9% mainly on account of 100 bps savings in raw material cost and 70 bps savings in other overheads. Advertisement spends increased marginally by 20 bps as % to sales. Net profit increased 16.5% to | 283.7 crore (I-direct estimate: | 283.2 crore) led by higher operating profit Presence in niche categories to keep revenue growth healthy Dabur India (DIL) has a strong portfolio of brands (Dabur Chyawanprash, Real, Fem, Honey, Meswak, Dabur Red) with focus largely on ayurvedic and healthcare offerings. The company’s diverse product portfolio (hair care, oral care, skin care, home care, health supplements, digestives, OTC & ethicals) and presence in niche categories has aided revenue growth at a robust 21% CAGR in FY08-13. Though hair care, skin care and OTC & ethicals have been seeing softening growth (7-10%) from FY13 onwards, other categories (juices, health supplements, digestives & oral care) are continuing to witness robust 15-20% growth. We believe led by DIL’s brand strength in higher growth niche segments & further strengthening of portfolio through new launches focusing on healthcare, revenue growth would continue to remain healthy at 13.5% CAGR (FY14-17E). On track to capture reviving urban growth In the last few years (FY11-13), DIL more than doubled its rural reach from ~15,000 villages to ~38,000 villages through its ‘Project Double’. The initiative played out extremely well for the company by increasing contribution of booming rural demand in DIL’s revenues to 45-50% from ~30% earlier. It also aided in maintaining its volume growth at 8-11%. Going ahead, with rural growth witnessing signs of flagging, DIL plans to consolidate its presence by increasing number of SKUs at these rural distribution points, rather than expanding reach further. Also, with DIL planning to increase its healthcare offerings, it is aiming to increase its urban coverage by capturing the untapped chemist network through a new initiative called ‘Project CORE’. The company has increased its chemist network reach from ~31,000 (FY13) to ~51,000 currently. Sustains volume growth Led by DIL’s niche portfolio and constant distribution expansion DIL’s volume growth has maintained its 9-11% trajectory since FY11. Even in FY13, when the FMCG industry overall was seeing a slowdown, DIL’s volume growth was a healthy 8-11%. Going ahead, volume growth may modest at 7-9%, with reviving demand scenario, expected from FY16E onwards, resulting in higher volume growth of ~10% in FY16E and FY7E. Volume growth remains healthy; fairly valued DIL is sustaining well for the future by increasing its presence to capture the revival in urban growth after establishing a strong presence in rural markets. We expect the expansion to augur healthy revenue and earnings CAGR (FY14-17E) of 14.5% and 16.2%, respectively. We value the stock at 32x FY17E EPS of | 8.2 and arrive at a target price of | 263.

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