Dabur India - Q2FY14 Update - Maintain HOLD, revised Target of Rs.175 - Sushil Finance

Dabur India Ltd has reported good set of numbers for the quarter ended Sept'13 which was in-line with our expectations. Its international business has also performed well. We also attended the conference call and some of the key points are summarized below:

Key Highlights of Q2FY14 Results

Dabur's Standalone Performance: For Q2FY14, its Revenue grew 10.4% YoY to Rs.11516.9 mn. EBITDA grew 12.7% YoY to Rs.2176.0 mn with margins of 18.9% which expanded by 38 bps YoY mainly due to softening of raw materials (-158 bps YoY as % of sales) & part of this gain is invested in A&P (+86 bps YoY) & staff cost (+38 bps YoY). APAT grew 10.2% YoY to Rs.1708.3 mn with margins of 14.8% which was flat YoY due to lower other income on account of one-time treasury loss of Rs.90 mn. Reported EPS of Rs.1.0. Consumer Care business contributed 81.0% to sales with EBIT margin of 28.9% (+44 bps YoY) while Foods & Others businesses contributed 16.1% & 2.8% to sales with EBIT margin of 14.6% (-177 bps YoY) & 9.4% (-347 bps) respectively.

Dabur's Consolidated Performance: For Q2FY14, its Revenue grew 14.8% YoY to Rs.17542.1 mn with volume growth of 10.9%. EBITDA grew 26.6% YoY to Rs.3292.4 mn with margins of 18.8% which expanded by 174 bps YoY mainly due to softening of raw materials (-325 bps YoY as % of sales) & part of this gain is invested in A&P (+113 bps) & staff cost (+63 bps). APAT grew 23.5% YoY to Rs.2498.3 mn with margins of 14.2% which improved by 100 bps YoY mainly on account of lower tax rate & part of which was offset by lower other income. Reported EPS of Rs.1.4. Consumer Care business contributed 85.5% to sales with EBIT margin of 24.9% (+193 bps YoY), retail contributed 0.9% to sales with EBIT margin of -8.5% (+1275 bps YoY) while Foods & Others contributed 11.6% & 1.9% to sales with EBIT margin of 16.1% (-285 bps YoY) & 9.1% (-315 bps) resp.

Dabur's International Business Performance:

Its International business reported 25.8% YoY revenue growth during Q2FY14 with constant currency growth of 13.8%. Strong growth (in constant currency) across all key markets: GCC (17%), Bangladesh (24%), Egypt (23%) & Turkey (16%). Healthy double digit growth for Namaste business in dollar terms & double digit growth in constant currency for Hobi business were the two positives on the International front.

Key Points from Concall of Dabur India

- Strong growth across all the key categories except Hair Care in Q2FY14: Health Supplements - 16.8%, OTC & Ethicals - 11.2% (Ethicals - 18.1%), Hair Care - 4% (Shampoo - +13%, Perfumed HO - 6.5% & Coconut HO de-grew), Oral Care - 18.7% (Toothpaste - 16.5% & Toothpowder - 25.3%), Home care - 25.3%, Digestives - 11.9%, Skin Care - 12.7% (Fem Bleach Portfolio - grew well and registered gains in market share) & Foods - 18.7% (Both Real & Real Activ performed well).

- Hair Care portfolio reported subdued growth on account of high base & overall slowdown in category. Mgmt. highlighted that new products along with refurbished marketing mix expected to drive growth going ahead. Plans to launch two new products under light hair oil segment in the forthcoming quarters.

- Healthy Domestic vs. International Sales Mix in Q2FY14: Domestic : International - 65% : 35%

- Demand Outlook: Highlighted that signs of an economic downturn evident in the domestic market & cautiously optimistic on domestic demand front for the forthcoming quarters. Highlighted that if there is slowdown over the next 4-5 quarters then it will impact Dabur as well. Seeing demand from rural India to continue to outpace the urban markets for the forthcoming quarters.

- Margins Outlook: Confident of maintaining margins (domestic & International) similar to H1FY14 going ahead as price hike impact will kick in from the coming quarters & rupee also stabilized. Highlighted that price increases in a calibrated manner will be taken to mitigate the impact of raw materials cost as the company believes that the raw materials cost will not going to be as favourable as H1FY14 going ahead.

- New Products Launched in Q2FY14: Launched a host of new products/variants across geographies, all of which have received encouraging response. In the domestic market, launched Pudin Hara PH Lemon Fizz & re-launched Odonil with 2x Freshness. Enter into male grooming segment through launch of Oxylife Men. Test launched Milk Shakes under brand Real in Delhi & Punjab. In International markets, new launches were Vatika - Brillantine Shine, Amla Shampoo range, Vatika Hair Gel - New Lamitubes & Amla Conditioners range. Products Pipeline: Product pipeline is robust but will continue with only test launch for the next few quarters due to demand pressure & instead focus on existing products. Plans to launch lot of OTC products across India from Q1FY15 as groundwork & team building exercise is complete.

- Capex Guidance for FY14 & FY15 - Rs. 150-120 Cr and commenced production in Sri Lanka on 8th Jul 2013.

OUTLOOK & VALUATION

Considering strong performance in H1FY14, strong brand portfolio, favourable domestic & International sales mix, favourable Rural & Urban sales mix, introduction of new products/variants, healthy Namaste performance, we expect Dabur's Revenues & APAT to grow at a CAGR of 14.1% & 18.6% resp. during FY13-FY15E. We believe the current pressure on discretionary staples in India will not impact Dabur much as it contributes only 10% to its domestic sales. At the CMP of Rs.172, the stock trades at a valuation of 27.7x its FY15E EPS of Rs. 6.2. We maintain our “Hold” rating with revised TP of Rs. 175 (28.0x its FY15E EPS).

Source : Equity Bulls

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