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Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Edelweiss Securities Limited
We recently met Mr. Sunil Duggal, CEO. Dabur anticipates volume growth
in the 8-12% YoY range in FY15E (double digit if urban demand revives)
riding innovations and novel distribution initiatives in chemist channels
(project CORE). Hair oils, a mature category, remains a concern and is
likely to grow slower than home and health segments; hence, Dabur is
focusing on innovations like Vatika Enriched Coconut Oil with hibiscus,
Vatika Olive Enriched Hair Oil. The company remains one of our preferred
picks underpinned by its higher volume growth, innovations and
aggressive distribution drive (Project Double spurred 300bps rural EBITDA
margin surge; project CORE initiated). Maintain ‘BUY’.
CORE to the fore: Mapping next leg of urban spurt With modern trade (25% plus growth) outpacing other channels (rural growing at 14%,
general trade at 11%) increasing salience of modern trade is propelling urban growth
rate (at 14%). Urbanisation along with company’s focus on enhancing product mix will
boost urban growth (aided by low base of past few years). Dabur has initiated Project
CORE—to enhance distribution of health care and personal products portfolio. In the
first phase, Dabur will increase chemist coverage from current 75,000 to 125,000.
Fuelling innovation fire to spur volume growth
On Dabur’s anvil are new offerings in beverages and health supplements in Q1FY15E.
The company’s sustained volume surge has outpaced most peers owing to relentless
focus on innovation. We believe innovation is imperative to renovate the existing
portfolio to keep consumer interest afloat and drive volume-led growth. Accelerated
innovation mandated high A&P (up 80bps YoY in Q3FY14 to 15.2% of sales), which we
expect to normalise gradually.
Outlook and valuations: Positive; maintain ‘BUY’
Dabur is well placed in the consumer space with differentiated offerings and
investments in future growth drivers (distribution, new launches). At CMP, the stock is
trading at 28.5x and 24x FY15E and FY16E EPS, respectively. We maintain ‘BUY/SO.
VISIT NOTE
DABUR Urban legends: Channelising CORE growth
EDELWEISS 4D RATINGS
Absolute Rating BUY
Rating Relative to Sector Outperformer
Risk Rating Relative to Sector Medium
Sector Relative to Market Underweight
MARKET DATA (R: DABU.BO, B: DABUR IN)
CMP : INR 173
Target Price : INR 218
52-week range (INR) : 185 / 123
Share in issue (mn) : 1,743.8
M cap (INR bn/USD mn) : 302 / 4,888
Avg. Daily Vol.BSE/NSE(‘000) : 1,586.1
SHARE HOLDING PATTERN (%)
Current Q2FY14 Q1FY14
Promoters *
68.6 68.6 68.6
MF's, FI's & BK’s 4.5 4.0 4.0
FII's 19.9 20.7 20.4
Others 7.0 6.7 7.0
* Promoters pledged shares
(% of share in issue)
: 0.1
PRICE PERFORMANCE (%)
Stock Nifty
EW Consumer
Goods Index
1 month 3.3 (3.4) (2.1)
3 months 5.1 (0.1) (0.6)
12 months 29.7 2.7 10.4
Abneesh Roy
+91 22 6620 3141
abneesh.roy@edelweissfin.com
Pooja Lath
+91 22 6620 3075
pooja.lath@edelweissfin.com
Tanmay Sharma
+91 22 4040 7586
tanmay.sharma@edelweissfin.com
India Equity Research| Consumer Goods
March 03, 2014
Financials
Year to March FY12 FY13 FY14E FY15E
Revenues (INR mn) 53,054 61,761 70,766 81,966
Rev. growth (%) 29.3 16.4 14.6 15.8
EBITDA (INR mn) 8,902 10,298 11,938 14,178
Net profit (INR mn) 6,449 7,634 9,064 10,684
Shares outstanding (mn) 1,742 1,743 1,743 1,743
Diluted EPS (INR) 3.7 4.4 5.2 6.1
EPS growth (%) 13.2 19.1 18.0 17.9
Diluted P/E (x) 47.1 39.6 33.5 28.5
EV/EBITDA (x) 34.2 29.5 25.1 20.8
ROAE (%) 41.5 40.0 37.8 35.7
Consumer Goods
2 Edelweiss Securities Limited
Table 1: Segment-wise snapshot
Source: Company, Edelweiss research
Segment Growth
Y-o-Y(%)
Domestic business 14.0
Hair Care � Shampoo portfolio grew by 25% YoY
� Launched Vatika Enriched Olive Hair Oil� Perfumed hair oils posted 8% YoY growth while coconut oils continued to remain subdued
Health supplement 19.5 � Dabur Chyawanprash witnessed strong growth and is growing at 17-18% YoY
� Dabur Honey continued to perform well on the back of health focused marketing
� Launched premium health supplement offering – Dabur Ratnaprash
Foods 18.0 � Real fruit juices reported strong double digit growth� Culinary portfol io under the Hommade brand performed well
Oral Care 10.4 � Toothpaste portfolio grew by 14% YoY with market share gains in premium offerings � Red toothpowder reamined flattish YoY
Digestive 17.7 � Hajmola franchise performed as the Anardana variant received positive response� Pudin Hara performed well aided by launch of PH Lemon Fizz
Skin Care 13.4 � Fem portfolio witnessed double digit growth with good momentum in HRC and bleaches� Launched Fem Fairness Naturals with No Added Ammonia� Gulabari posted good performance
Home Care 16.0 � Odonil and Sanifresh witnessed a good growth� Odonil 1 Touch Freshener launched in South India
OTC & Ethicals 13.2 � Ethicals portfolio grew by 15.5% YoY
26.0 � Organic business grew 9% YoY with 14% YoY constant currency growth driven by GCC, Egypt and
Nigeria� GCC grew 21% YoY, Egypt and Nigeria each grew 16% YoY� Namaste business showed double digit growth in constant currency; non-U.S. sales grew
significantly ahead of U.S. sales
Key takeaways Q3FY14
7.0
International
division
Dabur
3 Edelweiss Securities Limited
Meeting with Mr. Sunil Duggal | Key Takeaways
Has urban demand bottomed out?
Dabur believes urban demand has bottomed out with inflation pressures abating and a low
base of past few years. Salience of modern trade (currently contributes 10% to sales, highest
ever) has been increasing for the company. With modern trade growing faster (25% plus)
than other channels (rural growing at 14% while general trade in urban growing at 11%)
increasing salience of modern trade will help improve urban growth rate (at 14%). Modern
trade is growing largely on improving same store sales rather than store additions (new
store opening has remained muted; Future Retail in December quarter reported 0.02mn net
retail space reduction).
Dabur firmly believes that like in most economies, urban growth should be ahea d of rural
growth due to migration of population to urban areas, in spite of rural areas benefitting
from low penetration and low per capita consumption. Urbanisation along with the
company’s focus on better product mix (new launches are expected to be higher margin
products; higher growth potential seen in OTC health care and home care which are urban
centric products) is likely to boost urban growth while rural growth is likely to be mute
(impacted by higher base of past few years).
However, in our view, this seems to be a Dabur-specific strategy at this juncture and hence
it is enhancing its chemist distribution channel (largely an urban phenomenon). Also, its
rural growth has been high for the past two years on account of Project Double, which
increased rural penetration 2.5x in the past two years (direct coverage of 15,000 villages
was increased to 38,000; but this increase cannot sustain for long as cost of expansion
outweighs benefits as one digs deeper).
In fact, in our view, a lot of data points indicate worsening of demand in urban India in
Q3FY14—consumer confidence index in December quarter (at 15) continued to remain
below four year average of 118; same store sales growth (SSG) has slowed down for
Shoppers Stop at 5.5% YoY; value and home SSG for Future Retail stood at 3.3% and 2.0%
YoY, respectively; Yum! Brands India reported 4% YoY decline in SSG (lowest in past two
years); Jubilant Foodworks (JFL) reported first ever YoY drop in same stores sales (down
2.6% YoY) in spite of low base.
Mr. Sunil Duggal, CEO, Dabur
Consumer Goods
4 Edelweiss Securities Limited
Chart 1: Yum Brands—India SSS growth Chart 2: SSS decline 2.6% YoY – Jubilant Foodworks
Source: Company, Edelweiss research
In our view, Dabur is reaping the benefit of sharp pick up in innovations initiated in past few
quarters. The company is one of the few players which believe that urban demand has the
potential to revive and rural demand will ease off in FY15 due to high base of past few years.
Table 2: Dabur harps on innovation
Source: Company, Edelweiss research
(6.0)
(3.0)
0.0
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6.0
9.0
Q1
CY
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Q2
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(%)
Recent new launches
Q4FY13 Hajmola Anardana
Super Babool + Salt Power.
new Ethnic flavour "Kokam" under Real Burrst
Fem brand was introduced in Turkey
Odonil Gel
Q1FY14 Oxylife Aloe Vera Gel Bleach
Real Supa Fruits and Real Activ Drinking Yoghurts in mango and
strawberry flavours
Q2FY14 Pudin Hara Lemon Fizz
Vatika Hair Oil with Hibiscus
Odonil re-launched with 2x perfume content
OxyLife Men
Test launched Real Milk Shakes in Delhi and Punjab
Q3FY14 Ratnaprash
Odonil variants
Beverage variants
Vatika hair oil
Vatika Shampoo variant
Fem portfolio with no ammonia
(10.0)
2.0
14.0
26.0
38.0
50.0
Q4
FY
11
Q1
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Q2
FY
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FY
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Q2
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(%)
Dabur
5 Edelweiss Securities Limited
Is slowdown in hair oils structural?
In Q3FY14, hair oils clocked marked slowdown across categories—Marico reported mere 2%
YoY volume growth in parachute rigid packs and 8% YoY in value-added hair oils (VAHO),
Bajaj Corp reported meager 0.9% YoY volume growth, Navratna oil clocked 1% YoY volume
growth, coconut oil segment reported 3-4% YoY volume decline.
Table 3: Hair oil performance of peers
Source: Company, Edelweiss research
Though there is a possibility that the slowdown in hair oils could be episodical (short term;
high input cost inflation leading to frequent price hikes), Dabur believes coconut hair oil
slowdown is more like a structural phenomenon given the high penetration of coconut oils
and shift in preference towards light hair oils (LHO). The company, with small exposure to
the coconut oil segment, is likely to be better placed with value-added offerings (Vatika
enriched coconut oil with Hibiscus, Vatika Olive Enriched Hair Oil). Dabur has guided for 8-
12% value growth in the hair oil portfolio on back of support from new launches. It will
override the structural slowdown in the coconut oil segment (similar to toothpowder
strategy - defocused on toothpowder when the category witnessed structural shift to
toothpastes and laid emphasis on increasing salience of Red, Meswak and Babool) with
innovations and higher focus on value added offerings.
Marico, on the other hand, is of the view that the slowdown in the coconut oil segment is
temporary primarily attributable to volatility in input cost price (decline in price a year ago
followed by sharp increase) further impacted by economic slowdown (which is hampering
uptick in volume growth in the near term). The company believes that hair oil volume
growth has bottomed out and in the coming quarters Parachute volume growth will return
to 5-6%.
Our view: We believe hair oil (83%) is a highly penetrated category. Other high penetration
categories like detergents (97%), soaps (99%) and tea too are witnessing muted growth and
the next leg of growth will come largely by increasing per capita consumption. So slowdown
will persist over the medium term in hair oil category. Innovations combined with pricing
actions (in an inflationary scenario, leader tends to gain market share and thereby volume
growth of Marico could potentially improve as input cost inflation persists) will be key
growth drivers of this category (value added hair oils and innovative products will grow
faster than traditional coconut oil).
Chemist channel to be next focus area
In the past two years as Project Double was the focal point, focus on urban growth had been
low. This, combined with low consumer sentiment, were prime factors why management
believed that the time was not opportune to invest in urban growth. Now, as green shoots
are visible (though there will be a few quarters of transitory period) and consumer
sentiment is improving, the company is beginning to invest in urban growth with Project
CORE—chemist outlet and range expansion. As part of this project, Dabur has recruited
~350 people in the front end and will incur ~INR150mn for the first phase. Its current
Volume growth Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14
Parachute rigid packs - Marico 10.0 10.0 13.0 11.1 18.0 9.0 6.0 5.0 4.0 1.0 2.0
Value added hair oil - Marico 32.0 26.0 20.0 17.5 25.0 20.0 30.0 25.0 16.0 15.0 8.0
Bajaj Corp 20.0 22.0 20.5 22.3 22.4 18.7 22.3 19.1 20.2 15.0 0.9
Chemist shop in India
Consumer Goods
6 Edelweiss Securities Limited
coverage of 55,000 chemist stores has been increased to 75,000 and will be further
increased to 125,000. Project CORE’s primary focus will be the health care portfolio
(Chyawanprash, Honey, Glucose), OTC products (Honitus, Lal Tel) and personal care
portfolio which are more relevant to the chemist channel than to general trade.
We believe Project CORE will also help improve the margin profile as focus will be more on
profitable portfolio (health); Dabur’s margin expanded ~300bps in rural on account of
Project Double due to wider and more profitable mix.
Q3FY14 earnings call | Key Takeaways
Volume growth: Dabur expects to achieve volume growth in the range of 8-10% in FY15;
however, if urban growth revives, volume growth could be in the range of 10-12%.
Price hikes: Q4FY14 might witness price increase by 1-2% YoY. In FY15E, price increase will
be less than 5%.
Project CORE: Dabur initiated Project CORE in Q3FY14 (similar to Project Double which
sought to incre ase reach in rural areas) to only increase its direct reach points in the
chemists channel but to improve the quality of the chemists channel as well. Dabur had
direct chemist coverage of 55,000, which scaled up to 75,000 post launch of Project CORE.
The company targets to increase the same to 1,25,000 by end FY15E. This will enable it to
introduce new products in the market at a faster pace, particularly in the health care
portfolio. Profitability of the health care portfolio is higher than personal products and food
business. Dabur is targeting 30-35% growth in the chemist channel. First phase of this
project will cost INR150mn.
Urban and rural growth: Rural growth has been at a faster clip than urban growth since the
past few quarters but now this gap has reduced. Dabur believes that growth will now be
driven by the urban areas, which is witnessing an uptick. The company will be shifting its
focus to the urban area, which will drive premiumisation. Urban area margins are higher
than rural and will improve Dabur’s margin profile. The rural margin profile received a boost
from Project Double and improved by 300bps (rural margin improvement).
Innovations: Dabur had many innovations and new launches in Q3FY14. New launches
included Ratnaprash (a premium health supplement), honey and tulsi variant of Honitus,
olive enriched hair oil under the Vatika brand, Odonil one touch freshener in South India,
Fem Fairness Naturals with no added ammonia, Vatika Mandara and Kunkudukai shampoo
with olive conditioning in South India, etc. The premium launch Ratnaprash met with good
initial response. The company proposes to continue with the new launches and innovations,
but spread over the year and not cluttered in one quarter. Dabur will be launching a range
of summer products in beverages and health supplements.
Hair Care: The company’s overall hair care portfolio grew by 7% YoY with shampoos
witnessing 25% YoY growth. . Coconut oil as category (for Industry) has witnessed a decline.
Perfumed hair oil however, grew by 8% YoY with Dabur Almond hair oil reporting strong
double-digit growth. Dabur believes it can maintain growth of high single-digit in this
segment.
Health supplements: Glucose was impacted in the health supplements due to seasonality
and declined by 8-10% YoY. Chyawanprash and Honey witnessed good growth of 17-18%
Dabur
7 Edelweiss Securities Limited
YoY and 20-25% YoY respectively due to marketing initiatives and slight recovery in urban
demand.
Home Care: Home care grew 16% YoY with a good growth seen in air care. Insect repellent
was affected due to no order from institutional sales and low demand.
Health care: The health supplements portfolio grew 19.5% YoY with digestives moving up
17.7 YoY. OTC and ethical division witnessed 13.2% YoY growth. Dabur believes there is vast
headroom for growth in this segment and Project CORE will help drive the same.
Skin care: The segment reported 13.4% YoY growth led by the double-digit growth posted
by the Fem portfolio. Gulabari also performed well. The company expects this portfolio to
continue growing in mid-teens helped by the pickup in winter in Q4FY14.
Oral care: The overall oral care portfolio grew 10.4% YoY with toothpaste logging 14% YoY
growth. Dabur Red Toothpaste performed really well registering 25-30% YoY growth. Red
toothpowder growth was however, flattish during the quarter. Dabur does not believe that
launching sensitive toothpaste now will drive growth of this portfolio as big players are
already present in this segment. It maintains that its current brands are sufficient to drive
segment growth. Dabur is also focusing on improving margins in Babool.
Modern trade: Modern trade witnessed good growth with contribution increasing to 10.2%
of total revenues (8.5-9% in Q3FY13). Modern trade growth was led by new entrants in the
cash and carry and other normal modern format. 25% of the beverage sales were through
modern trade in Q3FY14.
International business: International business registered 26% YoY growth, with the organic
international business logging 29% YoY and 14% constant currency growth, driven by strong
growth in GCC, Egypt and Nigeria. Dabur expects the segment to witness margin
improvement in FY15E.
The Namaste business registered double-digit growth in constant currency terms with the
non-US sales growing ahead of sales in the US. For Namaste, Africa is growing at 30% YoY
and contributed ~25% of this business. Growth for Namaste in the US was is in low single-
digits in constant currency. EBITDA margin stood at 6-7% impacted by high ad-spend and
rise in selling and distribution expenses.
Bangladesh remains an important geography for the company, which was impacted by
political instability resulting in slow growth of ~10% YoY. Dabur has built a strong team and
product portfolio for this geography.
Dabur will expand only in adjacent geographies of its current markets like in Iran, Iraq and
Africa. It believes that Bangladesh and Pakistan together have the potential to become
INR5bn market each over the long term.
Ad-spend: During Q3FY14, ad-spend increased by 23.2% YoY to INR2896mn which aided
increased launches and innovations. Going forward, the company believes ad-spend will be
in the range of 14-14.5%, as a percentage of sales.
Consumer Goods
8 Edelweiss Securities Limited
Gross margins: Dabur expects to improve gross margin in FY15E, its inventory which
includes the high cost raw materials (increased due to high-cost petroleum derivatives) will
exist till February 2014. February onwards, gross margin will improve as the input cost prices
have remained benign. Dabur expects gross margin to improve by 100bps if the inflation
scenario remains benign.
Outlook and valuations: Positive; maintain ‘BUY’
Dabur is in a sweet spot with volume growth ahead of most peers due to its huge
innovation funnel and aggressive distribution drive. We like Dabur’s drive to increase its
chemists reach through Project CORE which will not only further increase growth in the
health care division but will be used for the personal care products as well. The growth in
the urban market also brings confidence which will have a positive impact on the margin
profile of the company. We maintain target price of INR218 (target P/E multiple of 30x). We
maintain ‘BUY’ and rate the stock ‘Sector Outperformer’ on relative return basis.
Chart 3: 1-yr forward PE band
Source: Edelweiss research
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Dabur
9 Edelweiss Securities Limited
Table 4: Consolidated segmental performance
Source: Company, Edelweiss research
Table 5: Standalone segmental performance
Source: Company, Edelweiss research
Year to March - Revenues (INR mn) Q3FY14 Q3FY13 % growth Y-o-Y Q2FY14 % growth Q-o-Q
Consumer care business 16,633 14,136 17.7 14,955 11.2
Foods business 1,938 1,649 17.5 2,034 (4.7)
Retail business 192 168 14.7 166 16.1
Others 279 354 (21.2) 334 (16.4)
Gross income (Excl other income) 19,043 16,307 16.8 17,488 8.9
Year to March - PBIT (INR mn)
Consumer care business 3,535 3,236 9.2 3,717 (4.9)
Foods business 282 181 55.8 328 (14.0)
Retail business (9) (27) NM (14) NM
Others 12 1 823.1 30 (60.3)
PBIT 3,820 3,391 12.7 4,061 (5.9)
Year to March - Margin
Consumer care business 21.3 22.9 (164) 24.9 (360)
Foods business 14.6 11.0 358 16.1 (157)
Retail business (4.8) (16.4) 1,157 (8.5) 373
Others 4.3 0.4 393 9.1 (475)
Margin 20.1 20.8 (73) 23.2 (316)
Year to March - Revenues (INR mn) Q3FY14 Q3FY13 % growth Y-o-Y Q2FY14 % growth Q-o-Q
Consumer care business 11,271 9,968 13.1 9,304 21.1
Foods business 1,863 1,578 18.1 1,853 0.5
Others 257 344 (25.2) 325 (20.8)
Gross income (Excl other income) 13,391 11,889 12.6 11,481 16.6
Year to March - PBIT (INR mn)
Consumer care business 2,885 2,561 12.6 2,691 7.2
Foods business 230 163 41.1 270 (14.7)
Others 4 (1) (384.6) 31 (87.9)
PBIT 3,118 2,722 14.5 2,991 4.3
Year to March - Margin
Consumer care business 25.6 25.7 (10) 28.9 (333)
Foods business 12.3 10.3 201 14.6 (221)
Others 1.4 (0.4) 182 9.4 (795)
Margin 23.3 22.9 39 26.0 (276)
Consumer Goods
10 Edelweiss Securities Limited
Table 6: Standalone performance
Source: Company, Edelweiss research
Table 7: Consumer companies rural - urban split
Source: Company, Edelweiss research
(INR mn) Q3FY14 Q3FY13 YoY % Change Q2FY14 QoQ % Change
Net sales/income from operations 13,391 11,889 12.6 11,481 16.6
Other operating income 31 37 (17.7) 36 (13.5)
Total income from operations 13,421 11,927 12.5 11,517 16.5
Cost of materials consumed 7,080 6,396 10.7 5,905 19.9
Advertising & publicity 1,813 1,516 19.6 1,238 46.4
Employee benefits expenses 899 799 12.4 880 2.1
Other expenses 1,420 1,297 9.5 1,318 7.8
Total expenses 11,212 10,008 12.0 9,341 20.0
EBITDA 2,209 1,919 15.1 2,176 1.5
Other income 302 213 41.7 186 62.1
Depreciation and amortisation expense 135 133 1.5 132 2.2
Finance costs 41 10 NM 47 (11.2)
PBT 2,335 1,989 17.4 2,184 6.9
Tax expense 503 415 21.2 475 5.8
PAT before exceptional 1,832 1,574 16.3 1,708 7.2
Exceptional (6) - NM (1) NM
PAT 1,826 1,574 16.0 1,707 (99.1)
As % of net sales
COGS 52.8 53.6 51.3
Advertising & publicity 13.5 12.7 10.8
Staff costs 6.7 6.7 7.6
Other expenditure 10.6 10.9 11.4
EBITDA 16.5 16.1 18.9
PBT 17.4 16.7 19.0
Net profit 13.6 13.2 14.8
Tax rate 21.5 20.9 21.8
% of sales Rural Urban
Dabur 47 53
Emami 52 48
Hindustan Unilever 45 55
GCPL 30 70
Marico 30 70
Bajaj Corp 37 63
Colgate 60 40
Nestle 25 75
GSK 27 73
Dabur
11 Edelweiss Securities Limited
Chart 4: Q3FY14 sales contribution Chart 5: Q3FY14 International business growth rate
Source: Company, Edelweiss research
Chart 6: Q3FY14 consumer care—Category contribution Chart 7: Consumer care—Category growth rate
Source: Company, Edelweiss research
Domestic
70%
Internation
al
30%
Hair care
28%
Oral care
17%
Health
supplemen
ts
23%
Digestives
7%
Skin care
6%
Home care
7%
OTC &
Ethicals,
12%
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Consumer Goods
12 Edelweiss Securities Limited
Chart 8: Domestic volume growth
Source: Company, Edelweiss research
Fig. 1: Innovations during Q3FY14
Source: Company
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Dabur
13 Edelweiss Securities Limited
Company Description
Dabur has two divisions in India (post integration of consumer care division and consumer
health division) apart from its international operations. Consumer care division (CCD) offers
a wide range of products in hair care, oral care, health supplements, digestives and candies,
baby and skin care products based on ayurveda, over-the-counter (OTC) products, Asavs,
and branded ethical and classic products. CHD division has been merged with CCD to
leverage distribution. The second division, Dabur Foods Ltd produces fruit juices, cooking
pastes, sauces, and items for institutional food purchases. Dabur is well placed among its
Consumer Goods peers because of its positioning as an Indian company whose products are
derived from exotic sources such as ancient ayurvedic texts and natural ingredients such as
herbs.
The company has various brand leaders in different market segments - Dabur
Chyawanprash, a health tonic, and Hajmola - a digestive tablet. Real, launched during 1996-
97, has also successfully become the leader in the market.
Investment Theme
Dabur’s broad product portfolio provides a good play on Indian Consumer Goods spend by
virtue of its strong presence in less penetrated and high growth categories. Dabur’s
positioning on the ‘health and wellness’ platform, backed by its ANH
(ayurvedic/natural/herbal) image is very progressive. This, combined with its demonstrated
ability to create new categories and sub-categories, makes it well-placed to capture lifestyle
changes-led growth in the Consumer Goods space. Dabur has also demonstrated its ability
to make and integrate smart acquisitions (Balsara) that complement its product portfolio
and thereby drive inorganic growth. Improvement in margins of foods and international
businesses are expected to result in improvement in margins for the consolidated
operations.
Key Risks
A slowdown in rural demand due to lower government spending or monsoon failure could
impact Dabur’s revenues significantly.
Further rise in competitive intensity in categories like Shampoo, Oral care, hair oils (HUL has
launched 2 products) may further put pressure on volumes.
Management bandwidth post acquisition in various international geographies might be a
concern.
14 Edelweiss Securities Limited
Consumer Goods
Financial Statements
Income statement (INR mn)
Year to March FY13 FY14E FY15E FY16E
Net revenue 61,464 70,409 81,545 94,863
Other Operating Income 297 357 421 497
Total operating income 61,761 70,766 81,966 95,360
Materials costs 30,193 34,819 39,982 46,378
Employee costs 4,712 5,421 6,361 7,399
Other Expenses 8,188 9,294 10,764 12,617
Advertisement & sales costs 8,370 9,294 10,682 12,427
EBITDA 10,298 11,938 14,178 16,539
Depreciation & Amortization 1,124 1,176 1,274 1,380
EBIT 9,174 10,762 12,904 15,160
Other income 945 1,259 1,108 1,321
Interest expenses 589 502 434 402
Profit before tax 9,530 11,519 13,578 16,079
Provision for tax 1,826 2,419 2,851 3,377
Net profit 7,704 9,100 10,726 12,703
Prior period adjustments (net) (46) - - -
Minority interest 24 36 43 51
Profit after minority interest 7,634 9,064 10,684 12,652
Diluted EPS (INR) 4.4 5.2 6.1 7.2
Dividend per share (INR) 1.5 1.8 2.1 2.5
Dividend payout (%) 34.3 34.3 34.3 34.3
Common size metrics
Year to March FY13 FY14E FY15E FY16E
Materials costs 48.9 49.2 48.8 48.6
Advertising & sales costs 13.6 13.1 13.0 13.0
Interest expenditure 1.0 0.7 0.5 0.4
EBITDA margins 16.7 16.9 17.3 17.3
Net profit margins 12.5 12.9 13.1 13.3
Growth ratios (%)
Year to March FY13 FY14E FY15E FY16E
Revenues 16.4 14.6 15.8 16.3
EBITDA 15.7 15.9 18.8 16.7
Net profit 19.6 18.1 17.9 18.4
EPS 19.1 18.0 17.9 18.4
Key Assumptions
Year to March FY13 FY14E FY15E FY16E
Macro
GDP(Y-o-Y %) 5.0 4.8 5.4 6.3
Inflation (Avg) 7.4 6.2 5.5 6.0
Repo rate (exit rate) 7.5 8.0 7.3 7.0
USD/INR (Avg) 54.5 62.0 60.0 58.0
Company
Revenue growth (Y-o-Y %)
Hair Oil (Domestic) sales growth 9.0 8.0 9.0 9.5
Chyawanprash (Domestic) sales growth 16.0 16.0 17.0 17.0
Honey (Domestic) sales growth 11.0 12.0 13.0 13.0
Tooth Powder & Paste (Domestic) sales growth 14.0 12.0 14.5 13.0
Hajmola (Domestic) sales growth 17.9 18.0 20.0 18.0
Asava - Arishta (Domestic) sales growth 23.0 17.0 15.0 15.0
Fruits, Nector & Drinks (Domestic) sales growth 30.0 21.0 24.0 24.0
Vegetable Pastes (Domestic) sales growth 20.0 15.0 12.0 10.0
Export sales growth 22.0 17.5 20.0 20.0
Volume growth (domestic) 9.8 10.0 11.0 11.0
Pricing change (domestic) 5.3 3.3 3.7 3.8
International business growth 10.1 27.5 18.3 19.6
Cost assumptions (Y-o-Y %)
COGS as % of sales (Consol) 48.9 49.2 48.8 48.6
Staff costs as % of sales 7.7 7.7 7.8 7.8
A&P as % of sales 13.6 13.2 13.1 13.1
Coconut oil (Domestic) as % of COGS 5.1 7.1 7.1 7.4
Paradichlorobenzene (Domestic) as % of COGS 2.4 2.4 2.4 2.3
Light Liquid Parafin (Domestic) as % of COGS 7.2 8.3 8.6 8.6
Sorbitol Solution 70 % IP (Domestic) as % of COGS 2.5 2.4 2.4 2.3
Amla Green (Domestic) as % of COGS 1.1 1.2 1.2 1.2
Financial assumptions
Tax rate (%) 19.2 21.0 21.0 21.0
Capex (INR mn) (116) 1,094 2,030 2,000
Debtor days 28 28 28 28
Inventory days 101 100 100 100
Payable days 74 75 75 75
Cash conversion cycle (days) 55 53 53 53
Depreciation as % of gross block 5.3 5.3 5.3 5.3
Dividend as % of net profit 34.3 34.3 34.3 34.3
15 Edelweiss Securities Limited
Dabur
Peer comparison valuation
Market cap Diluted PE (X) EV/EBITDA (X) ROAE (%)
Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E
Dabur 4,888 33.5 28.5 25.1 20.8 37.8 35.7
Colgate 2,880 35.8 30.5 26.2 22.0 94.6 97.5
Emami 1,594 26.3 22.8 21.8 18.7 45.9 45.0
Godrej Consumer 4,164 35.4 28.3 24.8 20.3 21.1 22.8
Hindustan Unilever 19,376 32.7 30.1 24.4 21.5 106.0 85.7
ITC 40,319 27.7 24.3 18.1 15.8 36.4 37.1
Marico 2,233 28.2 24.2 18.6 15.5 22.3 21.5
Nestle Ltd 7,820 44.1 35.5 24.0 20.6 53.0 50.8
AVERAGE - 39.6 29.6 22.8 19.6 45.4 43.2
Source: Edelweiss research
Cash flow metrics
Year to March FY13 FY14E FY15E FY16E
Operating cash flow 8,695 8,801 11,221 13,018
Investing cash flow (5,411) (1,094) (2,030) (2,000)
Financing cash flow (2,340) (6,124) (5,703) (5,957)
Net cash flow 944 1,583 3,488 5,061
Capex 116 (1,094) (2,030) (2,000)
Dividends paid (3,051) (3,622) (4,269) (5,056)
Profitability & efficiency ratios
Year to March FY13 FY14E FY15E FY16E
ROAE (%) 40.0 37.8 35.7 34.3
ROACE (%) 35.4 36.2 37.7 37.4
Inventory day 101 100 100 100
Debtors days 28 28 28 28
Payable days 74 75 75 75
Cash conversion cycle (days) 55 53 53 53
Current ratio 2.2 2.6 2.8 3.0
Debt/EBITDA 1.2 0.9 0.7 0.5
Debt/Equity 0.6 0.4 0.3 0.2
Interest coverage 15.6 21.4 29.7 37.7
Operating ratios
Year to March FY13 FY14E FY15E FY16E
Total asset turnover 2.0 2.0 2.0 2.0
Fixed asset turnover 3.8 4.4 4.9 5.5
Equity turnover 3.2 3.0 2.7 2.6
Valuation parameters
Year to March FY13 FY14E FY15E FY16E
Diluted EPS (INR) 4.4 5.2 6.1 7.2
Y-o-Y growth (%) 19.1 18.0 17.9 18.4
CEPS (INR) 5.1 5.9 6.9 8.1
Diluted PE (x) 39.6 33.5 28.5 24.0
Price/BV (x) 8.8 8.0 7.0 6.0
EV/Sales (x) 4.8 4.2 3.6 3.0
EV/EBITDA (x) 29.5 25.1 20.8 17.5
Dividend yield (%) 0.9 1.0 1.2 1.4
Balance sheet (INR mn)
As on 31st March FY13 FY14E FY15E FY16E
Equity capital 1,743 1,743 1,743 1,743
Reserves & surplus 19,501 24,943 31,357 38,953
Shareholders funds 21,244 26,686 33,100 40,696
Minority interest (BS) 121 157 200 251
Borrowings 12,577 10,577 9,577 9,077
Deferred tax liability 362 362 362 362
Sources of funds 34,303 37,781 43,239 50,386
Tangible assets 9,457 9,981 10,708 11,328
Intangible assets 6,362 6,362 6,362 6,362
CWIP (incl. intangible) 926 320 350 350
Total net fixed assets 16,745 16,663 17,420 18,040
Investments 6,319 6,319 6,319 6,319
Cash and equivalents 5,128 6,711 10,199 15,260
Inventories 8,439 9,539 10,954 12,706
Sundry debtors 4,841 5,429 6,288 7,315
Loans and advances 2,173 2,173 2,173 2,173
Other current assets 3,720 3,720 3,720 3,720
Total current assets (ex cash) 19,173 20,861 23,135 25,914
Trade payable 7,443 7,155 8,215 9,530
Others current liabilities 5,618 5,618 5,618 5,618
Total current liabilities & 13,061 12,773 13,834 15,148
Net current assets (ex cash) 6,112 8,088 9,301 10,767
Uses of funds 34,303 37,781 43,239 50,386
Book value per share (INR) 19.7 21.7 24.8 28.9
Free cash flow (INR mn)
Year to March FY13 FY14E FY15E FY16E
Net profit 7,634 9,064 10,684 12,652
Add : Non cash charge 1,783 1,714 1,750 1,832
Depreciation 1,124 1,176 1,274 1,380
Others 659 539 477 452
Gross cash flow 9,417 10,778 12,434 14,484
Less: Changes in WC 2,251 1,977 1,213 1,466
Operating cash flow 7,166 8,801 11,221 13,018
Less: Capex (116) 1,094 2,030 2,000
Free cash flow 7,281 7,707 9,191 11,018
16 Edelweiss Securities Limited
Consumer Goods
Top 10 holdings
Perc. Holding Perc. Holding
Life Insurance Corp Of India 2.32 Genesis Indian Inv Co Ltd 2.11
Matthews International Capital 2.01 First State Investments 1.78
Baring India Investments 1.50 Massachusetts Financial Services 0.66
Vanguard Group Inc 0.65 Harding Loevner Lp 0.50
Blackrock Fund Advisors 0.25 Frostrow Capital 0.18
*as per last available data
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded
17 Feb 2014 Mr. Sunil Duggal Sell 40000
11 Feb 2014 Mr. Sunil Duggal Sell 30000
29 Jan 2014 Ratna Commercial Enterprises Pvt. Ltd. Buy 100000
10 Dec 2013 Ratna Commercial Enterprises Pvt. Ltd. Buy 17500
*in last one year
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Additional Data
Directors Data
Dr. Anand Burman Non-Executive Chairman Mr. Amit Burman Vice Chairman
Mr. Saket Burman Promoter Director Mr. Mohit Burman Promoter Director
Mr. P. D. Narang Executive Director Mr. Sunil Duggal Executive Director, Chief Executive Officer
Mr. R. C. Bhargava Independent Non-Executive Director Mr. P. N. Vijay Independent Non-Executive Director
Dr. S. Narayan Independent Non-Executive Director Mr. Albert Wiseman Paterson Independent Non-Executive Director
Mr. Analjit Singh Independent Non-Executive Director Dr. Ajay Dua Independent Non-Executive Director
Auditors - M/s G. Basu & Co - Chartered Accountants; Internal Auditors:Price Waterhouse Coopers Pvt. Ltd
*as per last annual report
17 Edelweiss Securities Limited
Company Absolute
reco
Relative
reco
Relative
risk
Company Absolute
reco
Relative
reco
Relative
Risk
Asian Paints BUY SP M Bajaj Corp HOLD SU H
Colgate HOLD SP M Dabur BUY SO M
Emami BUY SP H GlaxoSmithKline Consumer
Healthcare
HOLD SP M
Godrej Consumer BUY SP H Hindustan Unilever HOLD SU L
ITC BUY SO L Marico BUY SO M
Nestle Ltd HOLD SU L Pidilite Industries BUY SP M
United Spirits BUY SP H
RATING & INTERPRETATION
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
18 Edelweiss Securities Limited
Consumer Goods
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Vikas Khemani Head Institutional Equities vikas.khemani@edelweissfin.com +91 22 2286 4206
Nischal Maheshwari Co-Head Institutional Equities & Head Research nischal.maheshwari@edelweissfin.com +91 22 4063 5476
Nirav Sheth Head Sales nirav.sheth@edelweissfin.com +91 22 4040 7499
Coverage group(s) of stocks by primary analyst(s): Consumer Goods
Asian Paints, Bajaj Corp, Colgate, Dabur, Godrej Consumer, Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite Industries, GlaxoSmithKline
Consumer Healthcare, United Spirits
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe
Rating Distribution* 122 47 14 184
* 1 stocks under review
Market Cap (INR) 118 54 12
Date Company Title Price (INR) Recos
Recent Research
17-Feb-14 Nestle
India
The wait continues;
Result Update
5,004 Hold
14-Feb-14 United
Spirits
Raising a toast to course
correction ;
Result Update
2,337 Buy
07-Feb-14 Bajaj Corp Volumes disappoint;
Result Update
208 Hold
> 50bn Between 10bn and 50 bn < 10bn
Buy Hold Reduce Total
Rating Interpretation
Buy appreciate more than 15% over a 12-month period
Hold appreciate up to 15% over a 12-month period
Reduce depreciate more than 5% over a 12-month period
Rating Expected to
19 Edelweiss Securities Limited
Dabur
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Consumer Goods
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