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COMPANY UPDATE
Dabur India — Moving Into Higher Gear
Dabur India — Moving Into Higher Gear
Dabur’s stock price performance over the last three months has been sluggish on account of a slowdown in revenue growth. We expect topline growth of nearly 30% (including acquisitions) in 2HFY11E as opposed to 17% in 1HFY11. This should provide significant impetus to stock price performance and we retain our BUY rating on the stock with above-consensus earnings estimates (“8%” for FY12) and a September 2011 target price of Rs115, implying 22% upside.
Domestic business should see improvement in revenue growth rates from 15.4% in 2QFY11 to 17.7% in 2HFY11E (excl. acquisitions) led by general improvement in demand and several new launches in categories such as Health Supplements, Home Care, Foods, Consumer Health Division (CHD).
Some of the recent acquisitions (Hobi, Namaste) are good strategic fits with the existing international operations of the company and we expect these acquisitions to contribute as much as 600bps to our aggregate revenue growth estimates of 22% for FY11-13E. On a more specific basis we expect contribution to the topline of around 13.0% for FY12E and 13.4% for FY13E and to PAT of around 7.7% for FY12E and 9.1% for FY13E.
Inorganic growth will continue to remain an important priority for the company considering that FCF from operations will see an improvement to Rs7bn in FY12E from Rs4bn in FY10. Personal Care and CHD will continue to remain important areas of focus and we expect the company to closely evaluate possible transactions such as Paras Pharma.
Outlook and Valuation: We have raised our FY12 earnings estimates by 9%. Including acquisitions, we expect the company to report topline growth of 22% and net earnings growth of 27% for FY11-13E. The stock is currently trading at an FY12 P/E multiple of 21.2x and FY12 EV/EBITDA multiple of 15.7x implying a 13% and 8% discount respectively to peers. Our valuation implies a forward P/E multiple of 23x and relative P/E multiple (to MSCI India) of 1.3x, which is consistent with Dabur’s multiple during the strong growth period of FY05-07.
We believe that: (i) likelihood of improved domestic growth momentum; (ii) the recent attractive international acquisitions; and (iii) inorganic growth opportunities; are not adequately priced into the stock. These should drive stock price performance over the next 12 months.
Significant decline in consumer spends and/or consumer confidence, legislative changes (taxation et al) and high raw material inflation are some of the key risks to our BUY rating and target price.
Domestic business should see improvement in revenue growth rates from 15.4% in 2QFY11 to 17.7% in 2HFY11E (excl. acquisitions) led by general improvement in demand and several new launches in categories such as Health Supplements, Home Care, Foods, Consumer Health Division (CHD).
Some of the recent acquisitions (Hobi, Namaste) are good strategic fits with the existing international operations of the company and we expect these acquisitions to contribute as much as 600bps to our aggregate revenue growth estimates of 22% for FY11-13E. On a more specific basis we expect contribution to the topline of around 13.0% for FY12E and 13.4% for FY13E and to PAT of around 7.7% for FY12E and 9.1% for FY13E.
Inorganic growth will continue to remain an important priority for the company considering that FCF from operations will see an improvement to Rs7bn in FY12E from Rs4bn in FY10. Personal Care and CHD will continue to remain important areas of focus and we expect the company to closely evaluate possible transactions such as Paras Pharma.
We believe that: (i) likelihood of improved domestic growth momentum; (ii) the recent attractive international acquisitions; and (iii) inorganic growth opportunities; are not adequately priced into the stock. These should drive stock price performance over the next 12 months.
Significant decline in consumer spends and/or consumer confidence, legislative changes (taxation et al) and high raw material inflation are some of the key risks to our BUY rating and target price.
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