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Research
Dabur India - Healthy volumes; margins disappoint... - ICICIdirect
Posted On : 2013-07-25 22:49:23( TIMEZONE : IST )
Dabur's Q1FY14 results were in line with our estimates on the topline front with 12.9% YoY increase in revenues to Rs. 1651.1 crore (I-direct estimate: Rs. 1658.1 crore) led by volume growth of ~9%. Lower than expected margins at 14.5% (I-direct estimate: 16.2%) were due to higher employee (23.6% YoY) and other expenses (18% YoY). However, savings in interest cost (37.4% lower YoY at Rs. 13.3 crore) and higher non operating income (49.6% YoY to Rs. 36.6 crore) drove the PAT 25% YoY to Rs. 187.1 crore. We believe that though margins disappointed in Q1FY14, higher price increases (~5%) in H2FY14E and savings in gross margins would revive EBITDA margins to 17.1% and 18.1% by FY14E and FY15E, respectively. We expect profits to post healthy CAGR of 22.7% FY13-15E. We recommend a HOLD rating.
International business growth to gain traction
During the quarter, Dabur's international business growth gained traction reporting growth of 17.8% against two slack quarters of 8.7% (Q3FY13) and 12.7% (Q4FY13) growth. With Dabur's aim of capturing a share of the fruit juices market in the MENA region and the revival in Namaste's performance (double digit growth in Q1FY14), we expect the international business to grow strongly at 20% CAGR in FY13-15E.
Advertisement expenses to remain high
We expect the company's advertisement expenses to remain higher at 13.5% in FY14E and 13% in FY15E on the back of increasing competition and the company's aim to maximise its reach in rural areas. Though higher expenses could cap margin growth, we believe incremental sales generation would nullify the savings in margins.
Earnings growth healthy, valuations inching higher
With Dabur's strong volume growth at 9% in a tough domestic environment and improving international performance, we expect revenues and PAT to grow at 15.2% and 22.7% CAGR in FY13-15E, respectively. However, with the stock already trading at 26x FY15E EPS of Rs. 6.6, we are wary of entering the stock at current levels. We recommend a HOLD rating with a target price of Rs. 180.
