Dabur India - Top-line grows strong; other income boosts earnings - Reliance Securities

Key highlights of the result

- Top-line grows strong, aided by a mix of value and volume growth: Dabur announced strong numbers on the top-line front, reporting a yoy growth of 23% to Rs1,364cr, aided by both value (YTD price increase across the portfolio is ~7%) as well as volume growth (~12.4% yoy growth in volume). The domestic business registered growth of 19.2% yoy this quarter, with double digit growth across all segments barring oral care, which registered a yoy growth of 7.7% in 4QFY2012. The international business (excluding Hobi and Namaste Laboratories) registered growth of 45.8% yoy, however, in constant currency terms the growth came at ~35% yoy for the quarter, with GCC, Egypt and Nigeria being the key growth markets. Hobi and Namaste Laboratories contributed ~Rs34cr and ~Rs137cr to the top-line respectively.

- Ad-spends in 4QFY2012 - a benchmark going ahead: Dabur continued to report operating margin contraction of 328bp yoy, on account of high raw material inflation (gross margin contracted 319bp yoy), coupled with increased advertisement expense (up 185bp yoy). The management has guided that the company will continue to invest behind its brands irrespective of the gross margin pressures (likely to sustain till the onset of monsoons, in our opinion). However, EBITDA reported for the quarter was higher by 1.9% yoy, aided by higher realizations.

- Earnings growth, aided by higher other income and trickle-down effect of higher EBITDA: Earnings reported a growth of 16% yoy to ~Rs171cr aided by higher other income (up 26.5% to Rs28cr), flattish depreciation cost at ~Rs29cr, lower tax rate (down 385bp yoy) and trickle-down effect of higher EBITDA.

Outlook and Valuation

Dabur's 4QFY2012 results were in-line with our estimates, hence, we have largely maintained our estimates. However, we do not see a revival in margins till 1HFY2013E and accordingly we have revised our margin expectations downward by ~50bp yoy for FY2013E. Further, we roll over our estimates to FY2014E. Over FY2012-14E, we expect the domestic business of Dabur to grow at ~15% yoy, aided by higher price realization (management has guided that further price hikes may be expected in the ensuing quarters) and volume growth. We pencil in 10-12% yoy growth in Hobi and Namaste's revenue, while, the international business is expected to register yoy growth of 16-17% over FY2012-14E. At the CMP, we recommend an Accumulate on the stock with a revised target price of Rs120.

Risks to the view

- Lower than estimated volume growth in the domestic business poses a downside risk to our estimates

- We expect normal monsoons, however, variance in the same will impact our estimates

- International business revenues are subject to exchange rate fluctuation and political turmoil.

Source : Equity Bulls

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