Strong volume growth; margins to expand • Dabur India :: ICICI Securities, report link

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Strong volume growth; margins to expand
• Dabur India’s Q2FY15 results were below our estimates on the sales
front as sales grew 10% to | 1924.1 crore (I-direct estimate: | 2034
crore). However, the company continue to post strong volume
growth at 8.7%
• Operating margins were down ~60 bps at 17.9% above our estimate
of 17.6% with 150 bps higher raw material to cost ratio mainly due to
lower price hike for the quarter
• Higher operating margins and lower tax provisioning led to in line
earnings growth of 15% to | 288.3 crore (I-direct estimate: | 291.2
crore)
Presence in niche categories to keep revenue growth healthy
Dabur India (DIL) has a strong portfolio of brands (Dabur Chyawanprash,
Real, Fem, Dabur Honey, Meswak, Dabur Red, etc.) with the focus largely
on ayurvedic & 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 (lower
penetration and lower competition) have aided revenue growth at a
robust 21% CAGR in FY08-13. Though hair care, skin care and OTC &
ethicals have been seeing a softening in growth (7-10%) from FY13
onwards, other categories (juices, health supplements, digestives and oral
care) are continuing to witness robust growth of 15-20%. 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 in
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 9-11%.
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 ~31000 (FY13) to ~51000 currently.
Sustained volume growth
Led by DIL’s niche portfolio & constant distribution expansion, volume
growth has maintained its 9-11% trajectory since FY11. Even in FY13,
when FMCG industry overall was witnessing a slowdown, DIL’s volume
growth was healthy at 8-11%. Going ahead, volume growth may remain
modest at 7-9%. A reviving demand scenario, expected from FY16E
onwards may result in higher volume growth of ~10% in FY16E & FY7E.
Volume growth remains healthy; fairly valued
DIL is shaping up 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 14.9% and 16.1%, respectively. We value the stock
at 28x FY17E EPS of | 8.2 and arrive at a target price of | 230.


LINK
http://content.icicidirect.com/mailimages/IDirect_Dabur_Q2FY15.pdf