Dabur - visit note-Mar-14-EDELbsmedia.business-standard.com/_media/bs/data/marke… · · 2016-07-13riding innovations and novel distribution initiatives in chemist channels

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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

[email protected]

Pooja Lath

+91 22 6620 3075

[email protected]

Tanmay Sharma

+91 22 4040 7586

[email protected]

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


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


Chart 1: Yum Brands—India SSS growth Chart 2: SSS decline 2.6% YoY – Jubilant Foodworks


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


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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

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Dabur


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


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


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


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


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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Table 4: Consolidated segmental performance


Table 5: Standalone segmental performance


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


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)


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


Table 6: Standalone performance


Table 7: Consumer companies rural - urban split


(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


Chart 4: Q3FY14 sales contribution Chart 5: Q3FY14 International business growth rate


Chart 6: Q3FY14 consumer care—Category contribution Chart 7: Consumer care—Category growth rate


Domestic

70%

Internation

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30%

Hair care

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Oral care

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Health

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Digestives

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Home care

7%

OTC &

Ethicals,

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Consumer Goods


Chart 8: Domestic volume growth


Fig. 1: Innovations during Q3FY14

Source: Company

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Dabur


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.


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


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 (%)


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


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


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


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


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


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


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)


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


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


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


Consumer Goods

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91-22) 4009 4400, Email: [email protected]

Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Co-Head Institutional Equities & Head Research [email protected] +91 22 4063 5476

Nirav Sheth Head Sales [email protected] +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


Dabur

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Consumer Goods

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