Dabur India Ltd - Q3FY14 Update, CMP Rs.170, Maintain HOLD, Target Rs.175.

DABUR INDIA LTD. - Q3FY14 RESULT UPDATE - CMP Rs.170, Maintain HOLD, Target Rs.175

Dabur India Ltd has reported decent set of numbers for the quarter ended Dec'13 which was in-line with our expectations. Some of the key points of performance are summarized below:

Key Highlights of Q3FY14 Results

Standalone Performance: During Q3FY14, its Revenue grew 12.5% YoY to Rs. 13,421 mn. EBITDA grew 15.1% YoY to Rs. 2,209 mn with margins of 16.5% which expanded by 37 bps YoY mainly due to softening of raw materials (-87 bps YoY as % of sales) & part of this gain is invested in A&P (+80 bps YoY). APAT grew 16.3% YoY to Rs. 1,831.5 mn with margins of 13.6% which was higher YoY due to higher other income. Reported EPS of Rs.1.1. Consumer Care business contributed 84.2% to sales with EBIT margin of 25.6% (-10 bps YoY) while Foods & Others businesses contributed 13.9% & 1.9% to sales with EBIT margin of 12.3% (+200 bps YoY) & 1.4% (+182 bps) respectively.

Consolidated Performance: Its Revenue grew 16.7% YoY to Rs. 19,093 mn (Domestic: International mix 68%:32%) with volume growth of 9.2%. EBITDA grew 8.4% YoY to Rs. 2,975.5 mn with margins of 15.6% which contracted 120 bps YoY mainly due to increase in A&P expenses (+80 bps) & staff cost (+76 bps). APAT grew 15.3% YoY to Rs. 2,436.4 mn with margins of 12.8% which remained flat on YoY basis. It reported EPS of Rs.1.4. Consumer Care business contributed 87.3% to sales with EBIT margin of 21.3% (-164 bps YoY), retail contributed 1% to sales with EBIT margin of -4.8% (+1152 bps YoY) while Foods & Others contributed 10.2% & 1.5% to sales with EBIT margin of 14.6% (+358 bps YoY) & 9.1% (+393 bps) resp.

International Business Performance:

Its International business reported 26% YoY revenue growth during Q3FY14 with constant currency growth of 14%. Strong growth (in constant currency) across all key markets: GCC (21%), Nigeria (16%), & Egypt (16%). Healthy double digit growth for Namaste business in constant currency was driven by strong 30% YoY growth in Non-US portfolio which accounts for 1/3rd of Namaste Revenue.

Key Points from Concall of Dabur India

- Decent growth across all the key categories except Hair Care in Q3FY14: Health Supplements - 19.5%, OTC & Ethicals - 13.2% (Ethicals - 15.5%), Hair Care - 6.9% (Shampoo - +25%, Perfumed HO - 8% & Coconut HO de-grew), Oral Care - 10.4% (Toothpaste - 14% & Toothpowder - growth remained flattish), Home care - 16%, Digestives - 17.7%, Skin Care - 13.4% (Fem Portfolio - grew in double digit) & Foods - 18% (strong double digit growth in Real). Hair Care portfolio reported subdued growth on account of slower market growth & decline coconut oils due to consumer shifting towards perfumed oil. Going forward, the Management expects growth in Hair oil to remain in low teen digit, which would be driven by new products and sustainable 15-18% growth in Shampoos in medium term. However, it expects a lot of opportunities in Hair Care segment in long term with prospects of increasing biz to 3-5x from current level in next 7 years.

- Demand & Margin Outlook: The growth in rural market has been better than urban growth in past several quarters. However, it is tapering now while urban growth is exhibiting initial signs of revival. The gradual reduction of prices of fruits & vegetable has been witnessed, which will eventually leave more money in hand of urban consumer. With rising urbanization, pick-up in infrastructure spends & macroeconomic recovery, urban demand is likely to pick up further and will be in focus in the medium term. The management expects some improvement in margins as the raw material prices is expected to come down by end of Q4FY14 or start of Q1FY15, while Petroleum derivatives which are ruling at high price currently, is also expected to come down in February. However, the Honey, LLP, coconut oil and some edible oil has witnessed inflation.

- New Products Launched: Launched a host of new products/variants across geographies. In the domestic market, it launched Ratanprash - a premium health supplement, Fem fairness naturals with no added ammonia, Vatika olive hair oil, Odonil 1 touch air freshener, Vatika Mandara & Kunkudukai shampoo with olive conditioning, and Honitus cough drops - Honey & Tulsi variant, while in International markets, new launches were Dermoviva Face Wash & hand Wash, and Fem Gold Hair Removal Cream.

- Products Pipeline: To expend its distribution, the Company is targeting chemists especially to drive categories like OTC healthcare, health supplements and select personal care products. It has launched a new initiative called 'Project Core' to expand its distribution footprint in chemist channel. It is expected to increase its chemist coverage from 55,000 to 75,000 in phase-I, which will come at cost of Rs 150 mn and want to expand it to 125,000 over next few years, It is targeting 30% - 35% growth from chemist channel

OUTLOOK & VALUATION

Considering decent 9MFY14 performance driven by 10% volume growth, we expect its Revenues & APAT to grow at a CAGR of 15.3% & 17.1% resp. during FY13-FY15E. At the CMP of Rs.170, the stock trades at a valuation of 28.1x its FY15E EPS of Rs. 6.0. We maintain our "Hold" rating with TP of Rs. 175.

Source : Equity Bulls

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