INSTITUTIONAL EQUITY RESEARCH
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
Dabur India Ltd (DABUR IN)
Extremely encouraging performance
INDIA | FMCG | Quarterly Update
2 August 2018
Top takeaways from 1QFY19 Results beat our estimates by a huge margin due to broad-based good performance
across its product portfolio. We find the two-year volume CAGR of 7.6% (21% volume growth in 1QFY19) to be extremely encouraging, despite rural areas (50% of overall sales) growing at a similar run-rate to urban areas.
We are happy to see competitive intensity abating in categories where sales were impacted by Patanjali’s pricing strategy and high-decibel ad campaigns. In fact, the ‘Patanjali effect’ seems to be waning, as the company faces supply-chain complications, quality-related issues, and as it focuses on multiple categories.
Health supplements (Chyawanprash and Honey) delivered the third consecutive quarter of c.15% revenue growth.
EBITDA growth of 25% yoy was way ahead of our estimates, despite substantial A&P spends (up 33% yoy) due to a tight lid on operating costs (staff cost / other expenses were up only 10%/5%).
International business (30% of sales) continued to recover in Q1FY19 (second consecutive quarter of +10% growth) driven by strong growth in the MENA region (appointment of standalone distributor in Saudi Arabia is aiding growth).
Best play on rural recovery: We believe the worst of the headwinds (8% EBITDA CAGR over FY14-18) – the lingering effect of demonetisation, and GST-related disruption given high dependence on the wholesale channel – are behind us. Competitive intensity should moderate now, with Patanjali facing challenges (mentioned above).
We expect consumer demand in rural areas to be much stronger in FY19, because of MSP hikes (at least 1.5x of production cost for all crops), the forecast of a normal monsoon, farm-loan waiver in key states, and higher fiscal spending towards creation of social/physical infrastructure ahead of General Elections in 2019. We see Dabur as a key beneficiary of the improving rural economy (50% of overall sales) with the right product-portfolio mix for this audience. We increase our target multiple to 45x (September 2020 EPS) from 40x earlier (June 2020 EPS), as Dabur is poised for 15%/14% EBITDA/PAT CAGR over FY18-21. Reasons: (1) Management gives preference to volume driven growth over margins. (2) Focus on new product launches (which was muted for a while). (3) Increasing distribution reach. (4) Improving distribution productivity under project Buniyaad. (5) Stability in international operations (Namaste profitability to see sharp improvement). We largely maintain our EPS estimates. It is still our top-pick within the mid-cap FMCG space. We hike our target to Rs 490 vs. Rs 425 earlier. Key risks to our call: (1) Discount-led competition by juice players (ITC etc.) to gain market share, and (2) any factor that hurts the rural economy.
Buy (Maintain) CMP RS 430 / TARGET RS 490 (14%)
COMPANY DATA
O/S SHARES (MN) : 1766
MARKET CAP (RSBN) : 694
MARKET CAP (USDBN) : 10.1
52 - WK HI/LO (RS) : 396 / 293
LIQUIDITY 3M (USDMN) : 10.5
PAR VALUE (RS) : 1
SHARE HOLDING PATTERN, %
Jun 18 Mar 18 Dec 17
PROMOTERS : 67.9 68.1 68.1
FII / NRI : 17.7 17.2 17.7
FI / MF : 8.0 8.5 8.5
NON PRO : 1.7 1.6 1.5
PUBLIC & OTHERS : 4.7 4.6 4.3
Key Financials
Rs mn FY19 FY20E FY21E
Net Sales 89,332 100,121 112,242
EBIDTA 18,799 21,532 24,364
Net Profit 15,675 17,983 20,382
EPS, Rs 8.9 10.2 11.6
PER, x 48.5 42.3 37.3
EV/EBIDTA, x 39.8 34.3 29.7
PBV, X 8.4 7.4 6.4
ROE, % 29.3 27.9 26.5
Debt/Equity (%) 15.5 12.8 10.8
CHANGE IN ESTIMATES
__Revised Est. __ __% Revision__
Rs bn FY19E FY20E FY19E FY20E
Revenue 89,332 100,121 1 1
EBITDA 18,799 21,532 (2) (1)
Core PAT 15,675 17,983 (0) 2
EPS (Rs) 8.9 10.2 (0) 2 Vishal Gutka Naveen Kulkarni Preeyam Tolia
(Rs mn) Q1FY19 Q4FY18 qoq
growth %
Q1FY18 yoy
growth %
PC yoy growth
estimates %
Comments
Volume growth (% yoy)
21 8 (4)
Strong volume growth led by strong growth across
segments
Net Sales 20,807 20,329 2 17,901 16 11
Gross Profits 10,321 10,305 0 8,755 18 10
Gross Margin (%)
49.6 50.7 -109 bps 48.9 69 bps -40 bps
Improved product mix, low cost input inventory drive
improvement in profitability
Staff costs 2,241 1,807 24 2,035 10 7
Ad spends 1,990 1,256 58 1,500 33 8
Other operating expenses 2,229 2,390 (7) 2,131 5 12
EBITDA 3,861 4,852 (20) 3,089 25 11 Operating leverage drives profitability
EBITDA margin (%) 18.6 23.9 -531 bps 17.3 130 bps 6 bps
PBT 4,022 5,026 (20) 3,378 19 9
Tax rate (%) 18.0 20.9 17.4 57 bps 357 bps
PAT 3,300 3,972 (17) 2,649 25 10
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
Volume growth picking up
Source: Company
Category growth rate
Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19
Growth rates Markets Domestic 8.8 (2.5) 8.5 0.5 2.4 (6.8) 0.7 (5.5) 10.7 17.7 10.0 24.7
International (reported currency) 8.8 14.8 15.7 6.0 (2.3) 6.0 - - - - - -
International (constant currency) 6.4 13.3 10.4 - - - (4.5) (2.2) 3.9 5.0 16.8 10.5
Categories
Health Supplements 9.0 (7.1) 5.0 - - (14.0) 5.0 (7.0) 3.0 19.5 14.0 27.5
Digestives 1.6 (2.4) 6.5 - - (10.0) (5.0) 4.0 11.7 19.3 7.2 21.6
OTC & Ethicals 10.8 7.5 7.1 - 11.3 (11.0) (4.0) 6.6 5.5 8.7 7.8 13.3
Hair Care 9.4 2.0 8.2 (3.0) (6.0) (20.0) (4.0) (11.0) 2.3 24.0 13.0 20.0
Home Care 12.4 8.4 19.3 2.0 20.0 (5.0) 6.5 6.2 10.1 36.0 - 17.4
Oral Care 18.7 10.5 18.3 11.6 - (5.0) 9.0 1.5 22.8 23.0 11.0 17.3
Skin Care 2.2 9.5 - - 7.0 (11.0) - 4.0 15.8 14.5 8.5 27.1
Foods 2.4 (23.7) 11.7 4.3 15.2 52.0 10.0 - 11.7 - 2.0 26.0
Contribution to domestic turnover Categories Health Supplements 16.0 25.0 16.0 12.0 15.0 23.0 17.0 12.0 15.0 24.0 17.0 12.3
Digestives 6.0 6.0 7.0 6.0 5.0 5.0 6.0 6.0 6.0 5.0 6.0 5.9
OTC & Ethicals 10.0 11.0 9.0 7.0 9.0 10.0 9.0 7.0 9.0 10.0 9.0 7.3
Hair Care 23.0 21.0 23.0 24.0 21.0 18.0 22.0 23.0 20.0 18.0 23.0 23.0
Home Care 7.0 6.0 6.0 6.0 8.0 6.0 6.0 7.0 8.0 7.0 5.0 6.8
Oral Care 16.0 14.0 15.0 16.0 16.0 15.0 16.0 18.0 19.0 16.0 17.0 17.0
Skin Care 4.0 6.0 5.0 5.0 5.0 6.0 5.0 5.0 5.0 6.0 5.0 5.4
Foods 18.0 11.0 19.0 24.0 21.0 17.0 19.0 22.0 19.0 14.0 18.0 22.3
Source: Company PhillipCapital India Research
8%
5% 7% 8% 7%
5% 4%
7%
4% 5%
-5%
2%
-4%
7%
13%
8%
21%
-10%
-5%
0%
5%
10%
15%
20%
25% Domestic volume growth (%)
Page | 3 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
Conference Call takeaways Rural areas grew at similar rate (24%) as urban; however, management
expects rural growth to outpace urban growth by 2-3% in the rest of FY19, driven by increase in government spending, good monsoon, and higher MSP.
Expect raw material inflation to inch-up in 2QFY19
Domestic business Health care (32% of FY18 domestic sales)
Health supplements (17% of FY18 domestic sales) grew by 28%, led by strong double-digit growth in honey (c. 42% yoy) and Chyawanprash. It has regained lost market share in honey from Patanjali through price cuts, improving product quality, and effective marketing strategy.
Disgestive (6% of FY18 domestic sales) grew by 22% driven by strong performance in Hajmola. It launched Dabur Hajmola Chat Cola in Q1FY19 along with Dabur Hajmola Amrud in FY18, which saw good traction, leading to market-share gains.
OTC and Ethicals (6% of FY18 domestic sales) grew by 13% and 23% led by
Honitus and others. Dabur Honitus Hot Sip (Kaadha) which was launched in FY18 has seen a strong response from customers, which further boosted growth in OTC.
Home and personal care (50% FY18 domestic sales)
Home care (7% of FY18 domestic sales) grew by 17%, mainly led by Odonil and Sanifresh.
Hair care (21% of FY18 domestic sales) saw strong growth double-digit in hair oils (c.19%) and shampoo (c.30%). Focused marketing initiatives and improved bottle saliency led shampoo growth; Dabur gained 70bps market share on price-warrior brands (Sarson and Brahmi hair oil), traction in the coconut hair oil segment, and A&P support for Dabur Amla.
Oral care (17% of FY18 domestic sales) grew by 17% led by Dabur Red toothpaste, while Dabur Red Gel (launched in FY18) grew reasonably. Babool declined marginally because of competitive intensity in the category, but to bring back growth, it will re-launch Babool with a new formulation in FY19. Colgate (which has been aggressive in terms of pricing on the herbal side) is putting pressure on economy brands, but Dabur plans to mitigate the impact through higher ad-spends and product activation.
Foods (18% of FY18 domestic sales)
Beverages grew by 27% driven by strong double-digit growth in Real and Activ; higher ad-spends, new product offerings, and discounts, led to regained lost market share from discount players (Paper Boat). It launched Real Ethnic Range – Masala Guava, Masala Pomegranate, and Alphonso Mango in Q1.
International business:
MENA saw healthy traction due to appointment of Separate distributor in Saudi Arabia and higher crude oil price support recovery in the region. Egypt/Saudi Arabia grew 31%/54% respectively.
Namaste reported low single-digit growth, reversing the declining trend of last year, but the company expects Namaste to turnaround, both in terms of revenue and profitability in FY19, due to localized manufacturing, launch of Curls Unleashed (natural product), tie-up with Wal-Mart, and increased geographical salience from the high-margin Africa region.
Page | 4 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
Two-year forward P/E band EV/EBITDA band
Source: PhillipCapital India Research Estimates
12x
24x
36x
48x
0
50
100
150
200
250
300
350
400
450
500 Rs
9x
18x
27x
36x
0
200000
400000
600000
800000 Rs mn
Page | 5 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
Financials
Income Statement Y/E Mar, Rs mn FY18 FY19E FY20E FY21E
Net sales 77,231 89,332 100,121 112,242
Growth, % 0.6 15.7 12.1 12.1
Other income 252 0 0 0
Total income 77,483 89,332 100,121 112,242
Raw material expenses -38,464 -44,245 -49,203 -54,810
Other Operating expenses -22,845 -26,288 -29,385 -33,067
EBITDA (Core) 16,174 18,799 21,532 24,364
Growth, % 7.2 16.2 14.5 13.2
Margin, % 20.9 21.0 21.5 21.7
Depreciation -1,622 -1,747 -1,888 -2,045
EBIT 14,553 17,053 19,645 22,319
Growth, % 6.5 17.2 15.2 13.6
Margin, % 18.8 19.1 19.6 19.9
Interest paid -531 -481 -489 -497
Other Non-Operating Income 3,052 3,021 3,323 3,656
Pre-tax profit 16,929 19,593 22,479 25,477
Tax provided -3,354 -3,919 -4,496 -5,095
Profit after tax 13,575 15,675 17,983 20,382
Net Profit 13,575 15,675 17,983 20,382
Growth, % 7.2 14.2 14.7 13.3
Net Profit (adjusted) 13,720 15,675 17,983 20,382
Unadj. shares (m) 1,762 1,762 1,762 1,762
Wtd avg shares (m) 1,762 1,762 1,762 1,762
Balance Sheet Y/E Mar, Rs mn FY17 FY18E FY19E FY20E
Cash & bank 3,061 21,059 31,570 46,463
Debtors 7,061 9,721 10,457 11,248
Inventory 12,562 12,168 12,168 12,168
Loans & advances 5,585 5,585 5,585 5,585
Total current assets 28,268 48,533 59,779 75,463
Investments 38,052 11,416 11,416 11,416
Gross fixed assets 30,458 32,958 35,958 38,958
Less: Depreciation -10,177 -11,923 -13,811 -15,856
Add: Capital WIP 415 415 415 415
Net fixed assets 20,696 21,449 22,562 23,516
Total assets 87,016 81,398 93,756 110,395
Current liabilities 19,898 18,023 19,341 23,468
Total current liabilities 19,898 18,023 19,341 23,468
Non-current liabilities 9,792 9,641 9,641 9,641
Total liabilities 29,690 27,664 28,982 33,109
Paid-up capital 1,762 1,762 1,762 1,762
Reserves & surplus 55,299 51,707 62,747 75,259
Shareholders’ equity 57,326 53,734 64,774 77,286
Total equity & liabilities 87,016 81,398 93,756 110,395
Source: Company, PhillipCapital India Research Estimates
Cash Flow Y/E Mar, Rs mn FY18E FY19E FY20E FY21E
Pre-tax profit 16,929 19,593 22,479 25,477
Depreciation 1,622 1,747 1,888 2,045
Chg in working capital -1,734 -4,292 583 3,336
Total tax paid -3,354 -3,919 -4,496 -5,095
Other operating activities -1,334 -1,346 0 0
Cash flow from operating activities 12,129 11,783 20,454 25,763
Capital expenditure -2,313 -2,500 -3,000 -3,000
Chg in investments -5,650 26,636 0 0
Cash flow from investing activities -7,963 24,136 -3,000 -3,000
Free cash flow 4,166 35,919 17,454 22,763
Equity raised/(repaid) 787 0 0 0
Debt raised/(repaid) -827 0 0 0
Dividend (incl. tax) -7,413 -2,602 -6,435 -7,342
Cash flow from financing activities -7,435 -2,602 -6,435 -7,342
Net chg in cash -3,269 33,317 11,019 15,422
Valuation Ratios
FY17 FY18E FY19E FY20E
Per Share data EPS (INR) 7.8 8.9 10.2 11.6
Growth, % 7.2 14.2 14.7 13.3 Book NAV/share (INR) 32.4 30.4 36.6 43.7 FDEPS (INR) 7.8 8.9 10.2 11.6 CEPS (INR) 8.8 9.9 11.3 12.7 CFPS (INR) 5.9 5.7 9.7 12.6 DPS (INR) 4.0 1.3 3.1 3.6 Return ratios
Return on assets (%) 16.9 19.0 20.9 20.3 Return on equity (%) 24.0 29.3 27.9 26.5 Return on capital employed (%) 22.0 24.5 26.5 25.6 Turnover ratios
Asset turnover (x) 3.3 3.3 3.4 3.9 Sales/Total assets (x) 0.9 1.1 1.1 1.1 Sales/Net FA (x) 3.8 4.2 4.5 4.9 Working capital/Sales (x) 0.1 0.1 0.1 0.0 Fixed capital/Sales (x) - - - - Working capital days 25.1 38.6 32.3 18.0 Liquidity ratios Current ratio (x) 1.4 2.7 3.1 3.2 Quick ratio (x) 0.8 2.0 2.5 2.7 Interest cover (x) 27.4 35.5 40.2 44.9 Dividend cover (x) Total debt/Equity (%) 14.5 15.5 12.8 10.8 Net debt/Equity (%) 9.2 (23.9) (36.1) (49.6) Valuation PER (x) 55.5 48.5 42.3 37.3 Price/Book (x) 13.3 14.2 11.8 9.9 Yield (%) EV/Net sales (x) 9.9 8.4 7.4 6.4 EV/EBITDA (x) 47.4 39.8 34.3 29.7 EV/EBIT (x) 52.7 43.9 37.6 32.4
Page | 6 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
Stock Price, Price Target and Rating History
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.
Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.
B (TP 325) B (TP 310)
B (TP 285) B (TP 285)
B (TP 300)
N (TP 315) N (TP 315)
N (TP 300) N (TP 300)
N (TP 330)
N (TP 345) N (TP 375) M-18
50
100
150
200
250
300
350
400
450
A-15 S-15 N-15 D-15 F-16 M-16 M-16 J-16 A-16 S-16 N-16 D-16 F-17 M-17 M-17 J-17 A-17 S-17 N-17 D-17 F-18 M-18 M-18 J-18
Page | 7 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
MANAGEMENT
Vineet Bhatnagar (Managing Director)
Kinshuk Bharti Tiwari (Head – Institutional Equity)
Jignesh Shah (Head – Equity Derivatives)
REGIONAL MEMBER COMPANIES
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FRANCE
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UNITED KINGDOM
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SRI LANKA
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RESEARCH
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Varun Vijayan
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CORPORATE COMMUNICATIONS
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Page | 8 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.
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No
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Page | 9 | PHILLIPCAPITAL INDIA RESEARCH
DABUR INDIA LTD QUARTERLY UPDATE
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Kindly note that past performance is not necessarily a guide to future performance.
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