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Dabur India (DABUR)
Consumer products
Low volume growth; margin management through adspends may not continue.
Domestic volume growth at 5% was below expectations. Gross margin pressure
continued and EBITDA margin was managed through cut in adspends. The company’s
commentary on (1) slowdown in rural sales growth and (2) higher adspends in 2HFY12E
indicates likely pressure on sales and margins, going forward. Retain SELL.
Low volume growth; adspends cut to manage margins
Dabur reported consolidated sales of Rs12.6 bn (+30%, KIE estimate Rs12.5 bn), EBITDA of Rs2.4
bn (+16%, KIE estimate Rs2.2 bn), and PAT of Rs1.7 bn (+8%, KIE estimate Rs1.7 bn). At
standalone level, it reported sales of Rs8,755 mn (+10%), EBITDA of Rs1,720 mn (+5%) and PAT
of Rs1,387 mn (+10%).
Consolidated sales growth of 30% consists of organic growth of 13% (10% volume, 4%
pricing and 1% translation loss). Hobi and Namaste reported sales of Rs314 mn and Rs1,311
mn, respectively. At a standalone level, sales growth is 10% which is almost equally split
between pricing and volume growth.
At a consolidated and standalone level, gross margin declined significantly by 287 bps and 238
bps, respectively due to higher raw material cost – likely higher prices of light liquid paraffin oil
(LLPO), menthol, edible oil etc. Other expenditure increased by 160 bps and180 bps,
respectively due to higher fuel and freight cost. However, EBITDA margin decline was limited to
213 bps and 91 bps, respectively due to moderation in adspends (237 bps and 363 bps of sales,
in consolidated and standalone, respectively).
Key highlights—lower adspends have hurt sales growth
The company indicated that it is witnessing deceleration in rural growth as a result of which
growth rate in urban and rural areas is almost equal now. Such a trend is disturbing given that
Dabur’s products have higher rural salience and other companies in the sector have not
commented on similar trend, as yet.
During the quarter the company restructured its distribution network such that it now
operates across four verticals – (1) Home and personal care which includes hair care, oral
care, skin care, (2) Health care which includes health supplements, digestives and OTC
products, (3) Foods which includes Real, Activ and Hommade and (4) Ethicals which is a
specialized business with large portfolio of SKUs. Annualized cost impact of this
restructuring is estimated to be Rs200 mn in FY2012E.
Average adspends in 1HFY12 was 8% of sales. The company indicated that in 2HFY12E
adspends will likely be higher. There will be new product launches across hair oil,
beverages and health supplements. The adspends moderation in 1HFY12 has likely hurt
its sales growth and the company is left with no choice than increase it in 2HFY12E.
Dabur Lanka Pvt. Ltd, a wholly owned subsidiary of Dabur International, was set up for
establishing a new fruit juice facility near Colombo. The company plans to invest Rs700
mn over 2 years and the plant will be operational from FY2013E. This will likely help
reduce freight cost as south India was so far being serviced by the plant at Nepal.
Foreign currency debt (of ~Rs10 bn) is repayable from February 2012 onwards over a 5-
year period. Effective interest burden works out to 2.2%. Dabur also (similar to Godrej
Consumer) follows the practice of routing the changes to foreign currency debt (due to
INR fluctuation) through the Balance Sheet.
Hobi (Turkish acquisition) has EBIT margin of 10.5% and Namaste (US and Africa) had
13.5% in 2QFY12. According to the company, (1) Namaste’s scalability potential is higher
than Hobi (2) Hobi’s margin’s could likely remain under pressure and it could likely get
impacted due to local currency movement (3) Hobi products likely to be introduced in
MENA and India in 2HFY12 and (4) local manufacturing for Namaste products has started
in UAE and a new manufacturing facility will likely be set up in Nigeria.
Key category analysis—hair oil performs well
Overall hair care sales growth of 16% driven by 27% growth in hair oil (mix of volume
and pricing) and 25% sales decline in shampoo (17% tonnage volume growth in
shampoo). Brand-wise, Vatika would have likely reported stronger growth than Dabur
Amla, in our view. Shampoo segment continued to reel under pressure of high
competitive intensity (19% decline in 1QFY12, 32% decline in 4QFY11, 30% decline in
3QFY11, 14% decline in 2QFY11, 17% decline in 1QFY11). While the company has
improved the value proposition of Vatika shampoo by offering 40% extra millage, we
believe that micro-marketing initiatives by HUL, P&G and aggressive trade-spend driven
growth strategy of ITC is likely hurting Dabur.
Oral care sales grew by 6% yoy with toothpaste sales growth of 8% and toothpowder
sales growth of 2%. The quarter was impacted due to supply constraint of a key
ingredient for Red Toothpaste which resulted in loss of sales for the July month.
Health supplement sales grew by 8% yoy. In our view, Dabur Glucose sales likely declined
due to weak summer whereas Chyawanprash and Honey likely had double digit sales
growth. Extended monsoon would have likely benefitted Chyawanprash sales.
Skin care sales declined by 2% during the quarter with Fem bleaches reporting flat sales
due to impact of distribution realignment. Uveda brand has been expanded to antiageing
cream and face scrub. The brand has been extended to south India.
OTC and Ethicals portfolio declined by 6% and 12%, respectively in 2QFY12 due to
disruption on account of distribution realignment. According to the management, sales
growth is likely to recover from 2HFY12E onwards.
Foods grew by 28% with strong growth in the juice segment. In our view, early festive
season sales would have likely aided growth.
Organic international sales growth was 23% with constant currency growth being 26%.
GCC, Egypt and Nigeria performed well.
Retain SELL
We tweak estimates marginally and retain SELL rating with TP of Rs110. Our FY2012E and
FY2013E EPS estimates are Rs3.7 and Rs4.4. Our key worries are (1) slowdown in rural sales
growth, (2) limited pricing power of the company, which makes it vulnerable to input cost
inflation, (2) Dabur is not a market leader in many categories, (3) any prolonged unrest in its
key international markets could impact operations (sales as well as margins). Key risk to our
rating is any steep correction in input cost which would lead to margin expansion.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dabur India (DABUR)
Consumer products
Low volume growth; margin management through adspends may not continue.
Domestic volume growth at 5% was below expectations. Gross margin pressure
continued and EBITDA margin was managed through cut in adspends. The company’s
commentary on (1) slowdown in rural sales growth and (2) higher adspends in 2HFY12E
indicates likely pressure on sales and margins, going forward. Retain SELL.
Low volume growth; adspends cut to manage margins
Dabur reported consolidated sales of Rs12.6 bn (+30%, KIE estimate Rs12.5 bn), EBITDA of Rs2.4
bn (+16%, KIE estimate Rs2.2 bn), and PAT of Rs1.7 bn (+8%, KIE estimate Rs1.7 bn). At
standalone level, it reported sales of Rs8,755 mn (+10%), EBITDA of Rs1,720 mn (+5%) and PAT
of Rs1,387 mn (+10%).
Consolidated sales growth of 30% consists of organic growth of 13% (10% volume, 4%
pricing and 1% translation loss). Hobi and Namaste reported sales of Rs314 mn and Rs1,311
mn, respectively. At a standalone level, sales growth is 10% which is almost equally split
between pricing and volume growth.
At a consolidated and standalone level, gross margin declined significantly by 287 bps and 238
bps, respectively due to higher raw material cost – likely higher prices of light liquid paraffin oil
(LLPO), menthol, edible oil etc. Other expenditure increased by 160 bps and180 bps,
respectively due to higher fuel and freight cost. However, EBITDA margin decline was limited to
213 bps and 91 bps, respectively due to moderation in adspends (237 bps and 363 bps of sales,
in consolidated and standalone, respectively).
Key highlights—lower adspends have hurt sales growth
The company indicated that it is witnessing deceleration in rural growth as a result of which
growth rate in urban and rural areas is almost equal now. Such a trend is disturbing given that
Dabur’s products have higher rural salience and other companies in the sector have not
commented on similar trend, as yet.
During the quarter the company restructured its distribution network such that it now
operates across four verticals – (1) Home and personal care which includes hair care, oral
care, skin care, (2) Health care which includes health supplements, digestives and OTC
products, (3) Foods which includes Real, Activ and Hommade and (4) Ethicals which is a
specialized business with large portfolio of SKUs. Annualized cost impact of this
restructuring is estimated to be Rs200 mn in FY2012E.
Average adspends in 1HFY12 was 8% of sales. The company indicated that in 2HFY12E
adspends will likely be higher. There will be new product launches across hair oil,
beverages and health supplements. The adspends moderation in 1HFY12 has likely hurt
its sales growth and the company is left with no choice than increase it in 2HFY12E.
Dabur Lanka Pvt. Ltd, a wholly owned subsidiary of Dabur International, was set up for
establishing a new fruit juice facility near Colombo. The company plans to invest Rs700
mn over 2 years and the plant will be operational from FY2013E. This will likely help
reduce freight cost as south India was so far being serviced by the plant at Nepal.
Foreign currency debt (of ~Rs10 bn) is repayable from February 2012 onwards over a 5-
year period. Effective interest burden works out to 2.2%. Dabur also (similar to Godrej
Consumer) follows the practice of routing the changes to foreign currency debt (due to
INR fluctuation) through the Balance Sheet.
Hobi (Turkish acquisition) has EBIT margin of 10.5% and Namaste (US and Africa) had
13.5% in 2QFY12. According to the company, (1) Namaste’s scalability potential is higher
than Hobi (2) Hobi’s margin’s could likely remain under pressure and it could likely get
impacted due to local currency movement (3) Hobi products likely to be introduced in
MENA and India in 2HFY12 and (4) local manufacturing for Namaste products has started
in UAE and a new manufacturing facility will likely be set up in Nigeria.
Key category analysis—hair oil performs well
Overall hair care sales growth of 16% driven by 27% growth in hair oil (mix of volume
and pricing) and 25% sales decline in shampoo (17% tonnage volume growth in
shampoo). Brand-wise, Vatika would have likely reported stronger growth than Dabur
Amla, in our view. Shampoo segment continued to reel under pressure of high
competitive intensity (19% decline in 1QFY12, 32% decline in 4QFY11, 30% decline in
3QFY11, 14% decline in 2QFY11, 17% decline in 1QFY11). While the company has
improved the value proposition of Vatika shampoo by offering 40% extra millage, we
believe that micro-marketing initiatives by HUL, P&G and aggressive trade-spend driven
growth strategy of ITC is likely hurting Dabur.
Oral care sales grew by 6% yoy with toothpaste sales growth of 8% and toothpowder
sales growth of 2%. The quarter was impacted due to supply constraint of a key
ingredient for Red Toothpaste which resulted in loss of sales for the July month.
Health supplement sales grew by 8% yoy. In our view, Dabur Glucose sales likely declined
due to weak summer whereas Chyawanprash and Honey likely had double digit sales
growth. Extended monsoon would have likely benefitted Chyawanprash sales.
Skin care sales declined by 2% during the quarter with Fem bleaches reporting flat sales
due to impact of distribution realignment. Uveda brand has been expanded to antiageing
cream and face scrub. The brand has been extended to south India.
OTC and Ethicals portfolio declined by 6% and 12%, respectively in 2QFY12 due to
disruption on account of distribution realignment. According to the management, sales
growth is likely to recover from 2HFY12E onwards.
Foods grew by 28% with strong growth in the juice segment. In our view, early festive
season sales would have likely aided growth.
Organic international sales growth was 23% with constant currency growth being 26%.
GCC, Egypt and Nigeria performed well.
Retain SELL
We tweak estimates marginally and retain SELL rating with TP of Rs110. Our FY2012E and
FY2013E EPS estimates are Rs3.7 and Rs4.4. Our key worries are (1) slowdown in rural sales
growth, (2) limited pricing power of the company, which makes it vulnerable to input cost
inflation, (2) Dabur is not a market leader in many categories, (3) any prolonged unrest in its
key international markets could impact operations (sales as well as margins). Key risk to our
rating is any steep correction in input cost which would lead to margin expansion.
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