dabur- result update-jul-12-edel - myirisbreport.myiris.com/es1/dabindia_20120724.pdfzdabur amla...

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Dabur’s Q1FY13 numbers were marginally ahead of our estimates, led by strong volume growth (domestic volume up 11.6% YoY against 5.0%, 8.0% and 9.5% in Q2FY12, Q3FY12 and Q4FY12). Key positives were: (i) strong volume growth in domestic business (despite impact of CSD sales); (ii) market share expansion in glucose, Amla hair oil, juices and Fem range; (iii) gross margin expansion after eight quarters of pressure; (iv) revival in shampoo growth; and (v) strong performance in foods portfolio. Key negatives were subdued growth in international business, muted growth in Babool and slowdown in Vatika (due to competitive pressure from coconut hair oils). We like Dabur’s renewed aggression in ad spends, product innovation and packaging. Rural sales (though strong in Q1FY13) may get impacted by monsoon deficiency; however, we believe the company will benefit from its rural distribution ramp up. Maintain ‘BUY’.

Robust growth; ad spends drive volume Dabur’s consolidated Q1FY13 revenue surged 21.4% YoY to INR14.6bn; domestic business posted 16.1% YoY growth, led by a strong 11.6% volume growth. Gross margin expanded 222bps YoY to 50.3%. EBITDA margin remained flat (down 56bps) as gross margin benefit was passed to ad spends (up 307bps). PAT grew 17% YoY; profit margin declined 40bps YoY to 10.2%. Extraordinary loss of INR49mn occurred due to sale of 38.4% stake in Weikfield International (UAE), a loss making subsidiary (non‐core asset).

Strong growth across categories The Consumer Care Division (CCD) posted robust performance with strong surge across categories—hair care registering 10.4% YoY growth (shampoos revived with 23% YoY growth), oral care 8.1% YoY, health supplements 18% YoY, skin care 13.3% YoY, home care 14.4% YoY, digestives 9.8% YoY and OTC & ethicals 12.7% YoY. Foods posted strong growth of 34.5% YoY (led by 37.6% YoY growth in juices). International Business (IB) grew 24% YoY; key growth categories were shampoos, hair cream and toothpaste.

Outlook and valuations: Growing strong; maintain ‘BUY’ At CMP, the stock is trading at 27.3x and 22.6x FY13E and FY14E, respectively. We maintain ‘BUY’ recommendation with ‘Sector Outperformer’ rating on the stock.

RESULT UPDATE

DABUR Going from strength to strength

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Outperformer

Risk Rating Relative to Sector Medium

Sector Relative to Market Equalweight

MARKET DATA (R: DABU.BO, B: DABUR IN)

CMP : INR 118

Target Price : INR 130

52‐week range (INR) : 120 / 92

Share in issue (mn) : 1,742.8

M cap (INR bn/USD mn) : 206/ 3,675

Avg. Daily Vol.BSE/NSE(‘000) : 1,372.7

SHARE HOLDING PATTERN (%)

Current Q4FY12 Q3FY12

Promoters %

68.7 68.7 68.7

MF's, FI's & BK’s 6.7 6.4 5.5

FII's 17.7 18.4 19.1

others 6.9 6.4 6.7 * Promoters pledged share (% of share in issue)

: Nil

PRICE PERFORMANCE (%)

Stock Nifty

EW Consumer Goods Index

1 month 7.7 3.0 2.6

3 months 4.2 (1.6) 6.0

12 months 2.4 (6.3) 23.8

Abneesh Roy +91 22 6620 3141 [email protected] Hemang Gandhi +91 22 6620 3148 [email protected] Pooja Lath +91 22 6620 3075 [email protected]

India Equity Research| Consumer Goods

July 24, 2012

Financials (INR mn)

Year to March Q1FY13 Q1FY12 % change Q4FY12 % change FY12 FY13E FY14E

Net sales 14,620 12,046 21.4 13,636 7.2 52,832 62,382 74,058

EBITDA 2,158 1,844 17.1 2,244 (3.8) 8,902 10,669 12,677

Net profit 1,494 1,277 17.0 1,705 (12.4) 6,449 7,604 9,170

Dil. EPS (INR) 0.9 0.7 16.8 1.0 (12.4) 3.7 4.3 5.2

Diluted P/E (x) 32.2 27.3 22.6

EV/EBITDA (x) 23.4 19.2 15.8

ROAE (%) 43.9 40.7 38.8

Consumer Goods

2 Edelweiss Securities Limited

Table 1: Segment‐wise snapshot

Source: Company, Edelweiss research

Key conference call takeaways • Growth: Domestic business grew 16.1% led by 11.6% YoY spurt in volume. Step‐up in ad

spends helped fuel growth. Dabur expects to clock 10% plus volume growth in FY13E. LUPs (INR10 Babool, INR1 Vatika sachet) contribute INR2.0‐2.5bn to overall sales. Rural sales continue to be ahead of urban, with the former contributing 46% to total revenue.

• Gross margin: Gross margin expanded 222bps YoY to 50.3% due to softening in raw material prices.

Segment Growth Y‐o‐Y(%)

Domestic businessHair Care Hair oil saw moderated growth of 8.4% mainly due to slowdown in Vatika Hair oil

Dabur Amla Hair oil grew at double digit and posted market share gain; Almond Hair Oil is doing well

Vatika Hair oil performance was muted owing to high price differential with coconut oils; Company adopted a constant price strategy refusing to take margin hit

18.0 Dabur Honey saw a strong growth across channels, regions and SKUs

Dabur Glucose witnessed double digit growth and posted market share gains

Food 34.5 Juices gained market share and grew at 37.6% with both Real and Active growing strong driven by new variants, Plum, Pomegranate and Super Berries; launched in the past quarter

More variants and extension to flow in future; it is also enhancing third party capacity and focusing on Sri Lanka plant to meet growing demand

Oral Care 8.1 Premium toothpastes, Meswak and Dabur Red toothpaste, grew in double digit despite higher pricing

The discount brand (Babool) was an overhang on the segment due to intense competition; Dabur to improve margin broke the popular INR10 price point (major contributor of Babool sales)

Dabur managed to maintain its market share in toothpastes

Dabur Red toothpowder witnessed strong double digit growth

Digestive 9.8 Hajmola tablets saw double digit growth backed by new flavors

Pudin Hara which was backed by packaging and media initiatives saw robust growthSkin Care 13.3 Dabur Gulabari witnessed good performance owing to re‐launch and extensive marketing initiatives

Dabur plans to focus on Uveda going ahead; will launch new products and develop newer channels

Fem portfolio grew handsomely by 13.4%; gained market share in both bleach and hair removal

Home Care 14.4 Odonil witnessed muted sIngle digit growth across impacted by CSD issue

Odomos reported good growth driven by activations and enhanced brand visibil ity

Sanifresh saw robust growth due to restage

OTC & Ethicals 12.7 OTC portfolio grew by 13.5% YoY; Lal Tail saw good growth

Ethicals portfolio grew by 11.3%

24.0 International business (IB) posted 24% YoY growth with 12% constant currency growth

Extraordinary loss of INR49mn occurred due to sale of 38.4% stake in (non‐core asset) Weikfield International (UAE) – loss making subsidiary

Key growth markets were GCC (grew 22% YoY), Nigeria (grew 21% YoY) and Egypt (grew 18% YoY) with shampoos, hair cream and toothpaste driving growthNamaste is facing slowdown (witnessed flattish growth) owing to – (1) US market seeing slowdown in consumption and (2) re‐launch of brand from “organic route stimulator” to “ORS”

Key takeaways Q1FY13

10.4

Shampoos saw revival clocking growth of 23% YoY; Henna variant, its flagship product, was the best performer growing at 27.2% despite stiff competition

International division

Health supplement

Dabur


• Domestic performance: Domestic business contributed 68% to overall sales, up 16.1% YoY, led by strong 11.6% volume growth (rest pricing led). CCD and foods contribution to domestic revenue is 76% and 18%, respectively. CCD posted a healthy 12% YoY growth (8.5% volume led); however, volumes were impacted due to CSD issue (contributing 7% to CCD revenues). The CSD issue is likely to extend to the next quarter as well. CSD contributes 6% to overall domestic business with major exposure in hair oil (Amla), air fresheners, Chawanprash and little exposure in oral care and foods.

• Health supplements: Health supplements contributed 16% to CCD revenue, growing 18% YoY led by strong growth in Dabur Honey and Glucose. Dabur Honey posted strong growth across channels, regions and SKUs. Glucose posted double digit growth and has gained market share.

• Digestives: This business contributed 8% to CCD revenue; grew 9.8% YoY led by double digit growth in Hajmola backed by new flavours. Pudin Hara and Isapgol, which were earlier classified under OTC category, have been shifted to Digesties; Lal Tail has been reclassified into OTC from Digestives. Pudin Hara, which was backed by packaging and media initiatives, saw robust growth.

• OTC and Ethicals: This business contributed 11% to CCB revenue; grew 12.7%. OTC portfolio (63%) posted 13.5% growth with Lal Tail posting modest growth. Ethicals (37%) grew 11.3%.

• Hair oils: The category growth at 8.4% YoY moderated primarily due to slowdown in Vatika Hair oil owing to high price differential with coconut oils (benefitted from significant decline in coconut oil prices). The company adopted a constant price strategy refusing to take margin hit, which we believe may have some short term pain, but will benefit in the long term. Differentiated offerings like Dabur Amla Hair oil (grew in double digit and posted market share gain) and Almond hair oil posted robust growth. Perfumed oils grew 14% YoY predominantly due to structural shift in hair oils with consumers preferring lighter hair oils. This structural shift will also aid margin improvement as price increase in this segment does not impact volume growth.

• Shampoos: Shampoos revived, clocking growth of 23% YoY. Henna variant, its flagship product, was the best performer, growing at 27.2% despite high competitive environment. The segment is witnessing hardening in prices which has led to margin erosion (however better YoY). The company has increased prices significantly in bottles, though value pack (INR1) remains untouched as it is a major factor driving growth.

• Home care: This segment contributing 7% to CCD revenue posted 14.4% YoY growth, driven by Odomos reporting good growth driven by activations and enhanced brand visibility. Sanifresh posted robust growth due to restage. Odonil registered muted sIngle digit growth across impacted by the CSD issue.

• Skin care: Skin Care grew 13.3% YoY. Dabur Gulabari witnessed good performance owing to relaunch and extensive marketing initiatives. Fem portfolio grew handsomely by 13.4% and gained market share in both bleach and hair removal segments; this growth is sustainable. Dabur plans to focus on Uveda going ahead; will launch new products and develop newer channels (currently only on ground support); it has a long gestation period before mass launch.

• Oral care: Oral Care grew 8.1% YoY with premium toothpastes, Meswak and Dabur Red toothpaste, growing in double digits despite higher pricing compared to Colgate. The discount brand (Babool) was an overhang on the segment due to intense competitive

Consumer Goods


pressure in this segment; Dabur, to improve margin, broke the popular INR10 price point (major contributor to Babool sales) for Babool which impacted growth. Dabur plans to add value to Babool by offering specialized offerings. The company managed to maintain market share in toothpastes. Management believes low teens growth is satisfactory for this category as it is well penetrated even in rural areas. Dabur Red toothpowder posted strong double digit growth.

• Foods: Foods business posted strong growth of 34.5% led by robust volume growth. Juices gained market share and grew at 37.6% with both Real and Active growing strong driven by new variants, Plum, Pomegranate and Super Berries, launched in the previous quarter. Dabur plans to launch more juice extensions and variants to add fresh taste to this category; it is also enhancing third party capacity and focusing on Sri Lanka plant to meet growing demand. Urban consumption contributes 90‐95% to total sales in this low margin juice business.

Margin pressure in foods business is likely to continue owing to rupee depreciation (70% of contents in juices are imported); volumes will continue to drive growth.

• Debt: Dabur has debt of USD135mn on its books. The cost of debt is 2.5‐3.0% with 4‐5 year repayment cycle. Forex loss of INR46mn owing to MTM losses were booked in the current quarter.

• International business: International business (IB) posted 24% YoY growth with 12% constant currency growth. Extraordinary loss of INR49mn occurred due to sale of 38.4% stake in (non‐core asset) Weikfield International (UAE), a loss making subsidiary. IB performance was impacted due to one‐off upfront expenses in Middle East; A&P spends are likely to cool off from current level, but will be maintained at high level.

Key growth markets were GCC (grew 22% YoY), Nigeria (grew 21% YoY) and Egypt (grew 18% YoY). Shampoos, hair cream and toothpaste were key growth categories. Margin profile of existing business is better than newly acquired businesses. IB margin to see faster revival compared with domestic business.

Namaste is facing slowdown (flattish growth) owing to: (a) slowdown in US market consumption; and (b) relaunch of brand from “organic route stimulator” to “ORS” leading to pipeline issues—company drying up old stock before new products enter the market (reason being organic word registered in other countries which will pose problem to enter these geographies, mainly South Africa). The company is contemplating setting up a manufacturing plant in South Africa to benefit supply chain.

Dabur


Table 2: Consolidated segmental performance


Year to March ‐ Revenues (INR mn) Q1FY13 Q1FY12 % growth Y‐o‐Y Q4FY12 % growth Q‐o‐Q

Consumer care business 11,748 10,163 15.6 11,400 3.1

Foods business 2,115 1,557 35.9 1,613 31.1

Retail business 133 84 58.2 123 8.2

Others 624 242 157.8 500 24.8

Gross income (Excl other income) 14,620 12,046 21.4 13,636 7.2

Year to March ‐ PBIT (INR mn)

Consumer care business 2,397 2,126 12.8 2,595 (7.6)

Foods business 334 250 33.8 302 10.7

Retail business (24) (26) 8.7 (29) (18.1)

Others 44 2 1,886.4 15 197.3

PBIT 2,751 2,351 17.0 2,882 (4.6)

Year to March ‐ Margin

Consumer care business 20.4 20.9 22.8

Foods business 15.8 16.0 18.7

Retail business (18.1) (31.3) (23.9)

Others 7.0 0.9 2.9

Margin 18.8 19.5 21.1

Consumer Goods


Chart 1: Sales contribution Chart 2: YoY sales growth rates

Chart 3: Domestic sales split Chart 4: Consumer care—Category contribution

Chart 5: Consumer care—Category growth rate Chart 6: International business growth rate


Domestic68%

International32%

consumer care76%

foods18%

others6%

(26.0)

(13.0)

0.0

13.0

26.0

39.0

Hair C

are

Oral Care

Health

supp

lemen

ts

Digestives

Skin Care

Hom

e Care

Food

s

OTC

Ethicals

(%)

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13

16.1

24

0.0

9.0

18.0

27.0

36.0

45.0

Domestic International

(%)

Hair Care33%

Oral Care18%

Health Suppleme

nts16%

Digestives8%

Skin Care7%

Home Care7%

OTC & Ethicals,

11

0.0

5.0

10.0

15.0

20.0

25.0

GCC Egypt Nigeria

(%)

Dabur


Financial snapshot (INR mn) Year to March Q1FY13 Q1FY12 % Change Q4FY12 % Change FY12 FY13E FY14E Net revenues 14,620 12,046 21.4 13,636 7.2 52,832 62,382 74,058 Other operating income 97 65 49.7 90 7.8 223 256 294 Total operating income 14,717 12,111 21.5 13,726 7.2 53,054 62,637 74,352 Staff costs 1,062 913 16.3 956 11.1 3,874 4,554 5,391 Cost of goods sold 7,316 6,290 16.3 6,849 6.8 26,852 31,569 37,325 Gross profit 7,401 5,821 27.1 6,877 7.6 26,202 31,068 37,027 Advt. sales & promotions 2,292 1,515 51.3 1,820 25.9 6,595 7,922 9,553 Other expenses 1,888 1,549 21.9 1,857 1.7 6,831 7,922 9,405 Total exp. (excl. cogs) 5,242 3,977 31.8 4,634 13.1 17,301 20,399 24,350 EBITDA 2,158 1,844 17.1 2,244 (3.8) 8,902 10,669 12,677 Depreciation & amortization 267 248 7.5 293 (9.0) 1,032 1,186 1,396 EBIT 1,891 1,595 18.6 1,950 (3.0) 7,869 9,483 11,281 Other income 245 151 61.7 190 28.8 574 605 758 EBIT including other income 2,136 1,747 22.3 2,140 (0.2) 8,443 10,088 12,039 Interest 213 145 46.6 57 271.7 538 618 590 Profit before tax 1,923 1,602 20.1 2,083 (7.7) 7,905 9,470 11,449 Provision for taxes 378 323 17.1 377 0.1 1,464 1,875 2,290 Core profit 1,546 1,279 20.8 1,706 (9.4) 6,441 7,595 9,159 PAT 1,496 1,279 17.0 1,706 (12.3) 6,441 7,595 9,159 Minority interest (2) (2) NA ‐ NA 8 9 11 Reported net profit 1,494 1,277 17.0 1,705 (12.4) 6,449 7,604 9,170 No. of shares (mn) 1,743 1,741 1,741 1,742 1,743 1,743 Diluted EPS (INR) 0.9 0.7 16.4 1.0 (12.3) 3.7 4.3 5.2 As % of sales COGS 49.7 51.9 49.9 50.6 50.4 50.2 Employee cost 7.2 7.5 7.0 7.3 7.3 7.3 Other expenses 12.8 12.8 13.5 12.9 12.6 12.6 Adv. & sales promotions 15.6 12.5 13.3 12.4 12.6 12.8 EBITDA 14.7 15.2 16.3 16.8 17.0 17.1 EBIT 12.9 13.2 14.2 14.8 15.1 15.2 PBT 13.1 13.2 15.2 14.9 15.1 15.4 Reported net profit 10.2 10.5 12.4 12.1 12.1 12.3 Tax rate 19.6 20.1 18.1 18.5 19.8 20.0

Consumer Goods


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 unique 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 carved its niche in the market.

Investment Theme Dabur’s broad product portfolio provides a good play on Indian FMCG 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 FMCG 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 a monsoon failure could impact Dabur’s revenues significantly. The company’s products such as Dabur Chyawanprash and Dabur Lal Tail are prominently sold in the rural areas, and hence, depend on growth in rural demand. Further rise in competitive intensity in categories like Shampoo, Oral care, OTC and ethical may further put pressure on volumes. Management bandwidth post acquisition in various international geographies is a concern.


Dabur

Financial Statements

Key Assumptions Year to March FY10 FY11 FY12 FY13E FY14EMacro ‐ GDP(Y‐o‐Y %) 8.4 8.4 6.5 6.4 7.0 Inflation (Avg) 3.6 9.9 8.8 7.0 6.0 Repo rate (exit rate) 5.0 6.8 8.5 7.3 6.8 USD/INR (Avg) 47.4 45.6 47.9 53.5 50.0 Company ‐ Volume growth (Domestic) 8.8 7.9 9.5 9.8 10.2 Pricing change (Domestic) 10.4 6.4 5.2 6.9 7.6 International business growth 30.4 52.4 89.5 21.4 20.9 COGS as % of sales 45.4 47.2 50.6 50.4 50.2

Income statement (INR mn) Year to March FY10 FY11 FY12 FY13E FY14ENet revenue 33,905 40,774 52,832 62,382 74,058Other Operating Income 238 271 223 256 294 Total operating income 34,143 41,045 53,054 62,637 74,352 Materials costs 15,507 19,375 26,852 31,569 37,325 Employee costs 2,847 3,087 3,874 4,554 5,391 Other Expenses 4,383 5,237 6,831 7,922 9,405 Advertisement & sales costs 4,935 5,346 6,595 7,922 9,553 EBITDA 6,470 8,000 8,902 10,669 12,677 Depreciation & Amortization 503 952 1,032 1,186 1,396 EBIT 5,968 7,048 7,869 9,483 11,281 Other income 244 322 574 605 758 Interest expenses 202 291 538 618 590 Profit before tax 6,009 7,079 7,905 9,470 11,449 Provision for tax 985 1,390 1,464 1,875 2,290 Net profit before minority 5,024 5,689 6,441 7,595 9,159 Minority interest 8 (3) 8 9 11 Profit after minority interest 5,032 5,686 6,449 7,604 9,170 Basic shares outstanding (mn) 1,734 1,740 1,742 1,743 1,743 Diluted EPS (INR) 2.9 3.3 3.7 4.3 5.2 Dividend per share (INR) 1.0 1.2 1.3 1.5 1.8 Dividend payout (%) 34.5 35.2 35.1 35.1 35.1

Common size metrics ‐ as % of net revenues Year to March FY10 FY11 FY12 FY13E FY14EMaterials costs 45.4 47.2 50.6 50.4 50.2Advertising & sales costs 14.5 13.0 12.4 12.6 12.8 Interest expenditure 0.6 0.7 1.0 1.0 0.8 EBITDA margins 19.0 19.5 16.8 17.0 17.1 Net profit margins 14.7 13.9 12.1 12.1 12.3

Growth ratios (%) Year to March FY10 FY11 FY12 FY13E FY14ERev. growth (%) 20.9 20.2 29.3 18.1 18.7EBITDA 33.5 23.6 11.3 19.9 18.8 Net profit 28.6 13.2 13.2 17.9 20.6 EPS growth (%) 16.9 12.7 13.0 17.9 20.6


Consumer Goods

Balance sheet (INR mn) As on 31st March FY10 FY11 FY12E FY13E FY14EEquity capital 869 1,741 1,742 1,742 1,742Reserves & surplus 8,485 12,170 15,427 19,928 25,355 Shareholders funds 9,354 13,911 17,169 21,670 27,097 Minority interest (BS) 38 41 33 24 13 Secured loans 702 4,455 4,226 4,831 4,606 Unsecured loans 1,091 6,055 7,009 5,904 5,629 Borrowings 1,793 10,510 11,235 10,735 10,235 Deferred tax liability 107 189 274 274 274 Sources of funds 11,291 24,651 28,711 32,702 37,618 Gross block 9,857 19,338 21,445 23,745 25,245 Depreciation 3,391 4,351 5,033 6,219 7,615 Net block 6,466 14,987 16,412 17,526 17,630 Capital work in progress 301 324 268 350 300 Investments 2,641 4,197 4,825 4,825 4,825 Inventories 4,262 7,085 8,239 9,030 10,700 Sundry debtors 1,198 3,555 4,617 4,807 5,687 Cash and equivalents 1,923 2,805 4,484 6,838 11,005 Loans and advances 3,674 4,666 5,869 5,869 5,869 Total current assets 11,058 18,712 23,999 27,334 34,051 Sundry creditors and others 4,669 7,394 9,298 9,838 11,692 Provisions 4,533 7,184 8,214 8,214 8,214 Total current liabilities & provisions 9,202 14,578 17,512 18,052 19,906 Net current assets 1,855 4,134 6,487 9,282 14,144 Miscellaneous expenditure 27 1,010 719 719 719 Uses of funds 11,291 24,651 28,711 32,702 37,618 Book value per share (INR) 5.4 8.0 9.9 12.4 15.5

Free cash flow (INR mn) Year to March FY10 FY11 FY12E FY13E FY14ENet profit 5,032 5,686 6,449 7,604 9,170Add : Non cash charge 697 1,247 1,563 1,795 1,976 Depreciation 503 952 1,032 1,186 1,396 Others 194 295 531 609 579 Gross cash flow 5,729 6,932 8,012 9,399 11,146 Less: Changes in WC (127) 2,455 312 442 695 Operating cash flow 5,857 4,478 7,700 8,958 10,451 Less: Capex 1,865 9,480 2,108 2,382 1,450 Free cash flow 3,991 (5,003) 5,592 6,575 9,001

Cash flow metrics Year to March FY10 FY11 FY12E FY13E FY14EOperating cash flow 5,857 4,478 7,700 8,958 10,451Investing cash flow (1,037) (11,036) (2,736) (2,382) (1,450) Financing cash flow (2,740) 6,098 (2,446) (4,222) (4,833) Net cash flow 2,080 (460) 2,518 2,354 4,167 Capex (1,865) (9,480) (2,108) (2,382) (1,450) Dividends paid (2,031) (2,328) (2,632) (3,104) (3,743) Share issuance/(buyback) 1 4 872 1 ‐


Dabur

Source: Edelweiss research

Peer comparison valuationCompany Market Mcap

Price (INR) (INR bn) FY13E FY14E FY13E FY14E FY13E FY14EConsumer GoodsAsian Paints 3,567 342 30.3 25.5 19.3 16.2 37.6 37.6Colgate 1,169 159 30.3 26.2 22.2 18.7 112.0 112.9Dabur 118 206 27.3 22.6 19.2 15.8 40.7 38.8Emami 490 74 24.6 20.0 20.4 16.5 38.8 42.3GSK Consumer* 2,660 112 26.8 22.8 17.1 14.3 34.3 33.7Godrej Consumer 609 207 28.8 23.9 20.5 16.9 28.8 29.2Hindustan Unilever 476 1029 33.1 28.1 27.3 22.8 78.3 74.2ITC 250 1960 27.2 23.4 18.7 16.2 38.2 39.5Marico 188 121 29.2 24.1 19.4 15.8 29.6 28.2Nestle* 4,450 429 38.2 32.0 24.3 20.0 77.9 73.9United Spirits 785 103 30.0 21.8 12.7 10.9 7.6 9.9Consumer Goods ‐ Mean 29.6 24.6 20.1 16.7 47.6 47.3Consumer Goods ‐ Mean (market cap wtd average) 29.9 25.4 21.2 17.9 51.6 51.0 Consumer Goods ‐ Mean (ex‐Nestle) 28.8x 23.9x 19.7x 16.4x 44.6 44.6

* CY numbers

P/E( x) EV/EBITDA(x) ROE (%)

Profitability & efficiency ratios Year to March FY10 FY11 FY12E FY13E FY14EROAE (%) 57.6 51.2 43.9 40.7 38.8ROACE (%) 75.6 48.4 35.5 36.6 37.2 Inventory day 43 51 53 53 53 Debtors days 16 21 28 28 28 Payable days 61 67 69 69 69 Cash conversion cycle (days) (2) 5 12 12 12 Current ratio 1.2 1.3 1.4 1.5 1.7 Debt/EBITDA 0.3 1.3 1.3 1.0 0.8 Debt/Equity 0.2 0.8 0.7 0.5 0.4 Adjusted debt/equity 0.2 0.8 0.7 0.5 0.4 Interest coverage 29.5 24.2 14.6 15.3 19.1

Operating ratios Year to March FY10 FY11 FY12E FY13E FY14ETotal asset turnover 3.1 2.3 2.0 2.0 2.1Fixed asset turnover 6.0 3.8 3.4 3.7 4.2 Equity turnover 3.9 3.5 3.4 3.2 3.0

Valuation parameters Year to March FY10 FY11 FY12E FY13E FY14EDiluted EPS (INR) 2.9 3.3 3.7 4.3 5.2Y‐o‐Y growth (%) 16.9 12.7 13.0 17.9 20.6 CEPS (INR) 3.2 3.8 4.3 5.0 6.1 Diluted PE (x) 41.0 36.4 32.2 27.3 22.6 Price/BV (x) 21.9 14.8 12.0 9.5 7.6 EV/Sales (x) 5.9 5.1 3.9 3.3 2.7 EV/EBITDA (x) 31.3 26.2 23.4 19.2 15.8 Dividend yield (%) 0.8 1.0 1.1 1.3 1.6


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Asian Paints BUY SP M Colgate HOLD SP M

Dabur BUY SO M Emami BUY SP H

GlaxoSmithKline Consumer Healthcare BUY SP M Godrej Consumer BUY SO H

Hindustan Unilever BUY SO L ITC BUY SO L

Marico BUY SO M Nestle Ltd HOLD SP L

United Spirits HOLD SU 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


Dabur

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, Colgate, Dabur, Godrej Consumer , Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, GlaxoSmithKline Consumer Healthcare, United Spirits

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 104 60 18 183* 1 stocks under review

Market Cap (INR) 114 58 11

Date Company Title Price (INR) Recos

Recent Research

23‐Jul‐12 Colgate Palmolive

Brush with outperformance continues; Result Update

1,171 Hold

23‐Jul‐12 Asian Paints Margins deliver, volumes disappoint; Result Update

3,603 Buy

10‐Jul‐12 GCPL A breath of fresh ‘aer’; EdelFlash

570 Buy

> 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


Consumer Goods

Access the entire repository of Edelweiss Research on www.edelresearch.com

DISCLAIMERGeneral Disclaimer:

This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither Edelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and their dependents from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information provided in these documents remains, unless otherwise stated, the copyright of Edelweiss. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright Edelweiss and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders. Edelweiss might be engaged or may seek to do business with companies covered in its research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should take informed decision and use this document for assistance only and must not alone be taken as the basis for their investment decision. Analyst Certification:

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Analyst holding in the stock: No. Additional Disclaimer for U.S. Persons

This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").

Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

dabur- result update-jul-12-edel - myirisbreport.myiris.com/es1/dabindia_20120724.pdfzdabur amla...

Documents