Dabur India : HOLD

Steady Performance

Dabur India Ltd (DIL) reported consol net revenue of Rs 11.1 bn (up 31% YoY), EBITDA of Rs 2.1 bn (up 27% YoY) & adj. PAT of Rs 1.5 bn (up 9% YoY) in Q4FY11, marginally below our expectations. Revenue growth in Q4 was driven by 9% volume growth, 5% price hike & 16% due to Hobi & Namaste acquisitions. 

Key Highlights  

• Sales growth outlook:  The mgmt has guided for ~10% vol growth & 5% pricing led growth in FY12E for the dom. biz. We expect the dom. business to grow at a similar rate but consolidated sales growth will be higher due to the Hobi & Namaste acquisitions. Consol growth expected at 31% in FY12E & 15% in FY13E. 
• Consumer Care Division (~67% of sales)  grew 15% YoY in FY11 led by health supplements (23% YoY), foods seg (28% YoY) & home care (32% YoY). Mkting initiatives in Hair care has led to improved growth (11% in Q4 vs. 5% for 9mFY11). Shampoo category is suffering due to increased competition. DIL improved the value proposition in Shampoos by offering 40% more vols (effected in Jan ‘11). We expect this division to grow at 15% over the next 2 yrs.
• EBITDA margins have remained flat (at 18.8% in FY11) for the standalone business despite rising RM cost pressures, mainly due to reduced ASP spends. On a consol basis, gross margins have declined by 100 bps YoY (to 53.3%) in FY11E while EBITDA margins have remained flat at 18.5%. For FY12E, we expect both rising RM costs & increased ASP spends to result in subdued margins.  We forecast a 60 bps decline in gross margins in FY12E to 53.1% due torise in RM costs. EBITDA margins expected at 18.2% in FY12E & 18.5% in FY13E.
• Int’l biz (17% of Rev, excl. Hobi & Namaste) grew 18% YoY in FY11: Growth was 22% in constant currency terms. N. Africa, Levant & Nigeria have been the fastest growing regions. The political turmoil in the MENA region did impact growth in Q4FY11 & management expects some near-term pressures (impacts ~7%-15% of int’l biz revenues). We have reduced our growth rate assumptions for the int’l biz to 19% for FY12E (vs. 23% earlier) & 18% for FY13E (vs. 20% earlier).
• Inorganic growth: Hobi & Namaste contributed ~4% to DIL’s consolidated sales in FY11. With consolidation for the full year in FY12E, this will go up to 13%.  Namaste witnessed an improvement in operating margins during the quarter (16% vs. prior avg ~13%), due to top-line driven operating leverage. Management hopes to maintain these margin levels, by rationalizing manufacturing & distributions costs.

We are not making any significant change to our EPS estimates – 1% reduction for both FY12E & FY13E. The stock currently trades at 25x 1-yr fwd EPS, close to its 5-yr median. We value the stock at 24x FY12E EPS with a 1-yr target price of Rs 96. HOLD rating