Dabur (India) Target (INR) 109 Valuations capture growth: Avendus

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DABUR reported a 14.7% rise in the consolidated net sales in 2QFY11
on the back of 12% growth in volumes, down from 17% in 1QFY11.
Growth slowed on account of a slowdown in the hair care and oral
care categories. Gross margins declined by 210‐bp, but flat ad spends
helped EBIDTA margins rise 20‐bp. EBIDTA and PAT were in line. Hobi
Kozmetik would be consolidated from 3QFY11f and is likely to add 1%
to earnings in FY12f. We retain our estimates and rollover our target to
Sep11. We arrive at a target of INR109 based on the average of the fair
values based on the P/E and mcap/sales methods. This represents an
upside of 9% from current levels. Maintain Hold.
Sales growth slips on slowdown in the Consumer Care Division
DABUR reported sales of INR9.7bn in 2QFY11, up 14.7% y‐o‐y (estimate: 20%).
Volume growth slipped from 17% in 1QFY11 to 12% in 2QFY11. The slowdown
was on account of the Consumer Care Division (CCD), where sales grew by 15%
in 2QFY11 compared to 21% in 1QFY11. In CCD, hair care (growth of 2%) and
oral care (growth of 11% compared to 20% in 1QFY11 ‐ on account of the high
base) were responsible for the slowdown. In oral care, toothpastes grew 14%,
while toothpowder grew 7%. In hair care, the decline in shampoos continued
with sales of Vatika down 15% (though market share has improved y‐o‐y); oils
grew 7% (Dabur Amla grew 10.5%), down from c22% in 1QFY11. The Indian hair
oil industry seems to be witnessing a slowdown given the lower reported
volumes for other players as well. Home care sales rebounded to 42% on the
re‐launch of Odonil and a lower base. Health supplements grew 31% on robust
sales of Glucose and Chyawanprash. Skin care sales disappointed with growth
of 9%. Fem’s sales grew 11%, while the brand’s hair removal range grew 20.8%
on re‐launch. Foods grew by 21.8%. The international business grew 19%.
Lower ad spends save EBIDTA margins; profits in line
Gross margins were down 210‐bp (estimate: 40‐bp decline). This was mainly on
account of an increase in vegetable oil and packing costs. EBIDTA margins were,
however, up 20‐bp to 20.9% following flat advertising expenses. DABUR’s
ad/sales ratio declined by 400‐bp q‐o‐q and 170‐bp y‐o‐y to 12.5%. EBIDTA was
up 16% to INR2.03bn (estimate: INR2.04bn). Adjusted profit for the Sept10
quarter was up 14.2% to INR1.60bn (estimate: INR1.63bn). Higher other
income was offset by higher tax on account of the increase in MAT rate.
Hold with a Sep11 target price of INR109
We retain our EPS estimates and factor in Hobi Kozmetik, which is likely to add
1% to consolidated earnings in FY12f and 2% in FY13f after interest. The stock is
trading at a P/E of 30x FY11f and 24.6x FY12f. Based on rolling EPS of INR4.4
(50% of FY12f EPS of INR4.0 and 50% of FY13f EPS of INR4.8) and target P/E of
25x, we arrive at a fair value of INR111. On rolling sales of INR52.8bn (50% sales
of FY12f and 50% of FY13f) and target Mcap/sales of 3.5x, we arrive at a fair
value of INR107. Taking the average, we arrive at a Sep11 target of INR109.
Given the 9% upside from current levels, we maintain our Hold rating.