abur India - Pick up in volume growth; can margins follow?? - Prabhudas Lilladher

- Consol volumes grow 12%: Dabur's Q4FY12 sales, EBITDA and PAT came in at Rs13.6bn (up 23% YoY), Rs2.15bn (up 2% YoY) and Rs1.71bn (up 16% YoY), as against our expectations of Rs13.6bn, Rs2.15bn and Rs1.59bn, respectively. While the headline reported numbers are in line, the quality of growth is slightly weak, with higher other income (up 27%) and forex gains driven lower interest costs (down 64% YoY) driving 11% PBT growth. Consol and domestic volumes posted healthy 12% and 9.5% growth, clearly benefitting from the recent pick up in adspends as well as strategic initiatives on rural as well as distribution front. Hair Care, Skin Care, Foods and Home outperformed, while Oral Care disappointed. While volumes have seen a pick up, margin pick up remains elusive as yet. International organic sales delivered 45.8% growth (35% in constant currency). Hobi and Namaste registered 22% and 15.6% growth, respectively and posted FY12 revenues of Rs6.9bn FY12.

- Lower gross margins and higher ad‐spends led to operating margin compression: Consolidated gross margins declined 320bps (up 80bps QoQ). ASP spends followed Q3 trajectory, up 43%, as Dabur continued to drive the focus on volume growth after relatively quiet H1FY12. Standalone operating margins declined 500bps, implying better YoY profitability in international business. Operating margins are up nearly 170bps for international business, in our estimates.

- Con‐call highlights: 1) Operation Double, expected to double rural reach, has now been extended to 10 states v/s two in Q2FY12 and now targeting 15 states accounting for 805 of business. 2) Gross margin recovery will be a function of input cost inflation - don't intend to take aggressive price hikes as it may jeopardise volumes. 3) ASP spends will remain in the current range of 13-13.5%.

- Maintain 'Accumulate': Continued recovery in volume growth was a key positive from Q4FY12. We see further pick up ahead once the benefits from rural distribution initiatives start flowing in. However, progress on gross margin improvement remains sluggish. We retain our estimates and roll forward our model to FY14e. Maintain 'Accumulate', with March-13 TP of Rs120 (23x FY14e).

Source : Equity Bulls

Keywords