Dabur India - Volumes Sustain Healthy Run; Margins Trend Northward ::Edelweiss

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Dabur’s Q3FY15 revenue and PAT came in line with our estimates. Domestic business volume growth stood at 7.4% YoY (6-10% volume growth likely in next 1-2 quarters as high dependence on urban revival). Toothpastes grew 19% YoY (11.5% YoY in Q2FY15; Colgate reported 11.8% YoY sales growth, category declined 3% YoY), driven by volume-led double-digit growth in Red (gained market share) and strong growth in Meswak. Honey, ethicals, Honitus, shampoos, Sanifresh and Real reported sturdy double-digit growth. Constant currency growth in international business was muted at 3.6% YoY owing to subdued performance of Namaste, though organic business grew at robust 16% YoY. Dabur is in a sweet spot with volume growth ahead of most peers due to its differentiated positioning, focus on innovations and distribution expansion leads it to grow ahead of market

Domestic growth intact; Namaste remains weak

Hair, home, health supplements and digestives grew 12.1%, 16.2%, 13.5% and 11.6% YoY, respectively. Skin care grew 4% YoY (9.7% YoY in Q2FY15) due to contained supplies (fire at the plant). Food grew 11.8% YoY (29% YoY in Q2FY15) due to high base (festive season was earlier in Q3FY15). Namaste business posted a subdued quarter on account of the pipeline correction undertaken to erase pricing discrepancies.

Q3FY15 conference call: Key takeaways

Rural growth was tad higher than urban in Q3FY15; YTD FY15 rural/urban growth rates are largely at par. Urban growth will take at least two quarters to improve. Modern trade (MT) growth was 25-30% YoY (25% contribution to urban sales) for Dabur, 3-4x industry MT growth. General trade growth moderation led to lower urban growth. Namaste is set to do better post Q1FY16 with sharp revival likely in FY17. Ad spends to be maintained at 13-14% of sales. With crude benefit to be higher Q4FY15 onwards, price hikes are likely to be low/none and at larger intervals.

LINK
https://www.edelweiss.in/research/Dabur-India--Volumes-Sustain-Healthy-Run;-Margins-Trend-Northward;-Result-Update-Q3FY15/28183.html