Dabur India Ltd - Strong Volume Growth; Flat Margins; Maintain BUY, TP Rs229 - PINC Result Review

Dabur reported robust Q1FY11 numbers with net sales growth of 19.5% largely driven by 17.5% volume growth and 2% price hike & currency fluctuation. Gross margins declined by 11bps on higher input prices. Staff cost and Other expenditure (% of net sales) declined by 37bps and 27bps while SG&A expenditure rose by 43bps and resulted in 9bps improvement in EBITDA margin. Higher tax burden was partially set off by slower growth in capital cost (interest and depreciation). PAT grew by 19%.

Strong growth in Consumer Care (CC) in Q1FY11

CC (~70% of sales) exhibited strong growth of ~19% YoY compared to ~10% growth in Q4FY10. It was supported by strong growth in Health Supplements (+43%), Oral Care (+20%) and Foods (+43%) categories. The growth of 9% in Hair Care was on account of spill over of some large orders from Q4FY10.

Exports continue to be the growth driver

International business (~21% of sales) witnessed ~29% surge on account of robust volume growth. Key geographies witnessed strong growth i.e. GCC (+26%), Egypt (+40%), North America (+74%) and Nigeria (+59%). The key export products are Amla Hair Oil, Vatika Olive Oil, HairCream and Toothpaste.

Acquisition in Turkey to boost FY12 onwards

Dabur acquired Turkey based personal care company Hobi Kozmetik for USD69mn in an all cash deal, valuing Hobi at 15x EV/EBITDA. The deal is expected to be completed by Q3FY11.

Better visibility of revenue growth and profitability

We believe high investments in skin care, foods and IBD segment will help in maintaining the current growth trajectory. RM cost rationalisation and other cost containment action will expand the EBITDA margins further.

VALUATIONS AND RECOMMENDATION

We retain our target multiple of 25x slightly higher than the sector as we believe consistent performance and diversified product portfolio with a high contribution from rural markets (50%) provides better visibility than peers. At 25x FY12E earnings our target price stands at Rs229, we maintain 'BUY' recommendation.

Source : Equity Bulls

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