RESULTS REVIEW 1QFY19 01 AUG 2018 Dabur India BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Out of the park Dabur reported an all-round solid performance with 20% consolidated revenue growth. Domestic revenues grew by 24% aided by 21% domestic volume growth, ahead of our (14/12% val/vol.) and street’s expectations. International business (30% mix) grew by 11% (exp. of 14%). EBITDA/APAT was up by 25/19% (exp. 20/18%) despite aggressive ASP Growth of 33%. Dabur’s strong domestic volume growth was led by market share gains, pickup in rural consumption (~300bps faster than urban market), aggressive ASP spend and favorable base. Oral care, Hair oil, Chywanprash gained share by 60/60/200bps. Dabur has been our top pick to play the revival in rural consumption and it is playing out well. Govt.’s impetus towards accelerating economy (mainly rural) would further push consumption. Dabur’s ambitious plans are to leverage this recovery with aggressive product launches (naturals space), higher investment in core portfolio (Shampoo, Skincare, Beverages etc) to attain scalability and distribution ramp up. We expect Dabur to deliver revenue/EBITDA/APAT of 15/20/22% CAGR over FY18-FY21E. With improving visibility in the domestic business, we upgrade our target P/E multiple to 38x (35x earlier) on Jun-20EPS to arrive at a TP of Rs 461 (Rs 423 earlier). Maintain BUY. Highlights of the quarter Domestic volume up by 21%: The growth was across categories of Dabur. Hair oil/Shampoo/Skin Care/Health supplements/Foods /Oral care registered stellar growth of 19/30/27/27/27/17%. International recovery gradual: Int. revenues (31% of total) grew at slow 10.5% cc. Namaste grew at low single digit and impacted the overall growth. While, GCC, Egypt and Hobi posted strong 17%, 31% and 37% cc growth. We expect gradual pickup in the int. sales. Robust 25% growth in EBITDA: Consolidated GM was up by 69bps due to lower promotional costs and favourable product mix. ASP up by 33% YoY (-24% in base). Oplev expanded EBITDAM by 130bps to 18.6% (exp. 100bps). EBITDA up by 25% vs. -11% in 1QFY18 and 20% exp. Other income down by 9% (exp. +8%). APAT was up by 19% to Rs 3.30bn (exp. Rs 3.26bn). Near-term: Dabur is one of our top-picks to play the rural recovery (~45% rev. from rural). With improving consumer sentiments, we believe it will lead to healthy earnings growth in the ensuing quarters too. Financial Summary (Consolidated) (Rsmn) Q1FY19 Q1FY18 YoY (%) Q4FY18 QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Sales 20,807 17,901 16.2 20,329 2.3 76,136 77,219 89,587 102,230 116,529 EBITDA 3,861 3,089 25.0 4,852 (20.4) 15,089 16,174 19,786 23,650 27,721 APAT 3,292 2,761 19.2 3,962 (16.9) 12,769 13,663 16,860 20,429 24,247 Diluted EPS (Rs) 1.86 1.57 18.9 2.25 (17.1) 7.25 7.76 9.57 11.60 13.76 P/E (x) 57.9 54.1 43.9 36.2 30.5 EV / EBITDA (x) 47.8 44.2 36.2 30.0 25.2 RoIC 47.1 46.9 53.0 59.4 66.2 Source: Company, HDFC sec Inst Research INDUSTRY FMCG CMP (as on 31 Jul 2018) Rs 420 Target Price Rs 461 Nifty 11,357 Sensex 37,607 KEY STOCK DATA Bloomberg DABUR IN No. of Shares (mn) 1,766 MCap (Rsbn)/(US$ mn) 745/10,871 6m avg traded value (Rsmn) 752 STOCK PERFORMANCE (%) 52 Week high / low Rs 429 / 293 3M 6M 12M Absolute (%) 15.6 22.1 41.6 Relative (%) 8.7 17.4 26.1 SHAREHOLDING PATTERN (%) Promoters 67.88 FIs & Local MFs 8.04 FPIs 17.66 Public & Others 6.42 Source : BSE Naveen Trivedi [email protected]+91-22-6171-7324 Siddhant Chhabria [email protected]+91-22-6171-7330
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RESULTS REVIEW 1QFY19 01 AUG 2018
Dabur India BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Out of the park Dabur reported an all-round solid performance with 20% consolidated revenue growth. Domestic revenues grew by 24% aided by 21% domestic volume growth, ahead of our (14/12% val/vol.) and street’s expectations. International business (30% mix) grew by 11% (exp. of 14%). EBITDA/APAT was up by 25/19% (exp. 20/18%) despite aggressive ASP Growth of 33%. Dabur’s strong domestic volume growth was led by market share gains, pickup in rural consumption (~300bps faster than urban market), aggressive ASP spend and favorable base. Oral care, Hair oil, Chywanprash gained share by 60/60/200bps. Dabur has been our top pick to play the revival in rural consumption and it is playing out well. Govt.’s impetus towards accelerating economy (mainly rural) would further push consumption. Dabur’s ambitious plans are to leverage this recovery with aggressive product launches (naturals space), higher investment in core portfolio (Shampoo, Skincare, Beverages etc) to attain scalability and distribution ramp up. We expect Dabur to deliver revenue/EBITDA/APAT of 15/20/22% CAGR over FY18-FY21E. With improving visibility in the domestic business, we upgrade our
target P/E multiple to 38x (35x earlier) on Jun-20EPS to arrive at a TP of Rs 461 (Rs 423 earlier). Maintain BUY. Highlights of the quarter Domestic volume up by 21%: The growth was across
categories of Dabur. Hair oil/Shampoo/Skin Care/Health supplements/Foods /Oral care registered stellar growth of 19/30/27/27/27/17%.
International recovery gradual: Int. revenues (31% of total) grew at slow 10.5% cc. Namaste grew at low single digit and impacted the overall growth. While, GCC, Egypt and Hobi posted strong 17%, 31% and 37% cc growth. We expect gradual pickup in the int. sales.
Robust 25% growth in EBITDA: Consolidated GM was up by 69bps due to lower promotional costs and favourable product mix. ASP up by 33% YoY (-24% in base). Oplev expanded EBITDAM by 130bps to 18.6% (exp. 100bps). EBITDA up by 25% vs. -11% in 1QFY18 and 20% exp. Other income down by 9% (exp. +8%). APAT was up by 19% to Rs 3.30bn (exp. Rs 3.26bn).
Near-term: Dabur is one of our top-picks to play the rural recovery (~45% rev. from rural). With improving consumer sentiments, we believe it will lead to healthy earnings growth in the ensuing quarters too.
Consolidated constant currency revenue growth, adjusted for GST, was at 19.6% Domestic business grew by 24% (exp. of 13.4%) supported by all time high volume growth of 21% International biz grew by 10.5% on constant currency basis owing to favourable base (-2% in 1QFY18) and improving consumption dynamics GM was up by 69bps on account of lower promotional costs and favourable product mix Despite 32% growth in A&P (-24% in 1QFY18), EBITDA margins expanded by 130bps (exp. of 101bps)
DABUR INDIA : RESULTS REVIEW 1QFY19
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Quarterly Segmental Year to March (Rsmn) Q1FY19 Q1FY18 YoY (%) Q4FY18 QoQ (%) FY18 FY17 YoY (%) Consumer Care Business 16,561 14,251 16.2 16,774 (1.3) 64,141 47,780 34.2 Foods 3,635 3,108 17.0 2,934 23.9 10,977 8,162 34.5 Retails 304 278 9.1 279 8.9 1,143 925 23.5 Others 230 208 10.5 248 (7.6) 970 843 15.2 Unallocated other operating revenue 78 55 40.4 94 (16.8) 252 Total 20,807 17,900 16.2 20,329 2.3 77,483 57,710 34.3 Segmental EBIT Consumer Care Business 3,789 3,202 18.3 4,287 (11.6) 15,961 11,594 37.7 Foods 519 325 59.8 554 (6.2) 1,581 1,088 45.4 Retails 13 5 na 4 197.6 31 (12) na Others 20 (15) (233.6) 17 14.0 28 35 (20.4) Total 4,341 3,517 23.4 4,862 (10.7) 17,602 12,705 38.5 Less: (a) Interest Cost & Bank Charges 149 133 12.0 132 12.4 531 423 25.3 (b) Other Un-allocable Expenses 170 6 na (296) (157.4) (2) 491 na PBT 4,022 3,378 19.0 5,026 (20.0) 17,074 11,790 44.8 Capital Employed Consumer Care Business 22,529 21,753 3.6 22,444 0.4 22,529 21,753 3.6 Foods 3,231 4,801 (32.7) 3,344 (3.4) 3,231 4,801 (32.7) Retails 296 276 7.5 288 3.0 296 276 7.5 Others 287 355 (19.2) 216 32.8 287 355 (19.2) Total 26,343 27,185 (3.1) 26,292 0.2 26,343 27,526 (4.3) Unallocable Capital Employed 34,416 24,283 41.7 31,038 10.9 34,416 24,283 41.7 Total Capital Employed 60,759 51,469 18.1 57,331 6.0 60,759 51,469 18.1 Consumer Care Business 16,561 14,251 16.2 16,774 (1.3) 64,141 47,780 34.2 Source: Company, HDFC sec Inst Research EBIT Margin Year to March (Rsmn) Q1FY19 Q1FY18 YoY (bps) Q4FY18 QoQ (bps) FY18 FY17 YoY (bps) Consumer Care Business 22.9 22.5 41 25.6 (268) 24.9 24.3 62 Foods 14.3 10.5 383 18.9 (458) 14.4 13.3 108 Retails 4.1 1.7 243 1.5 261 2.7 (1.3) 406 Others 8.5 (7.0) 1,553 6.9 161 2.9 4.2 (129) Total 20.9 19.6 121 23.9 (306) 22.7 22.0 70 Source: Company, HDFC sec Inst Research
Segmental growth is based on reported numbers. Foods margins revived owing to favourable base (-483bps in 1QFY18), freight benefits (GST) and benign input costs
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Revenue growth Domestic Value and Volume Growth Trajectory
Source: Company, HDFC sec Inst Research Note: International revenue growth is on constant currency basis
Source: Company, HDFC sec Inst Research
Domestic biz (67.8% in 1QFY19 vs. 65.9% in 1QFY18) continued to take share from international biz Rural wholesale grew by 24% YoY vs. urban wholesale growing by 8%. Pre-GST urban wholesale used to feed in rural pockets. For the FMCG sector rural is now growing ~300bps faster than urban (~500bps historical levels) vs. ~150-200bps in FY18 Domestic business is witnessing consistent recovery driven by volume growth. We expect double digit value growth in the medium term
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Remarkable performance by Dabur’s oral care segment during a challenging period (expected to clock Rs 10.5bn in FY19 vs. ~Rs 8bn in FY17) Hair care revenue mix is constant YoY Food increased from 21.9% in Q1 FY18 to 22.3% in Q1 FY19 Dabur Honey has grown by 33/24/42% YoY during 3QFY18/4QFY18/1QFY19 which signals declining competitive intensity from Patanjali
International Revenue Growth (CC basis) 1QFY19 Geography-wise Growth (CC basis)
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Broad based growth during 1QFY19 Continued market share gain in Toothpaste is heartening Dabur Red toothpaste is now a Rs 5bn brand Oral care, Home care, Skin care and Digestives reported double digit value growth in FY18 in a turbulent environment Encouraging to see recovery in Hair care, Foods and OTC & Ethicals after a disappointing FY18 Favorable base for most categories would play key role in the coming quarters Most of the geographies witnessed a turnaround in 1QFY19 with favourable base, stabilizing currency and improving consumer confidence index
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DABUR INDIA : RESULTS REVIEW 1QFY19
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Assumptions Particulars FY17 FY18 FY19E FY20E FY21E Domestic Gr. (%) 1.0 5.2 15.3 13.3 13.8 Hair Care Gr. (%) (6.8) 4.2 13.7 11.6 13.0 Oral Care Gr. (%) 7.5 16.9 14.0 13.8 14.0 Health Supplements Gr. (%) (2.7) 10.4 13.6 14.0 14.0 OTC & Ethicals Gr. (%) (9.6) 5.2 9.7 13.3 14.0 Digestive Gr. (%) (11.4) 10.4 12.2 12.0 12.5 Home Care Gr. (%) 4.6 13.8 16.3 12.7 14.0 Skin Care Gr. (%) 5.3 11.0 15.2 13.5 14.0 Foods Gr. (%) 12.2 1.5 17.1 13.7 14.5 International Gr. (%) (5.0) (6.3) 15.0 14.0 14.0 Consolidated Revenue Gr. (%) (3.0) 1.4 16.0 14.1 14.0 Gross Margin (%) 50.7 50.5 50.9 51.6 51.8 ASP (% of sales) 8.5 7.9 8.1 8.0 8.1 Distribution (% of sales) 2.7 2.5 2.3 2.2 2.1 Employee (% of sales) 10.4 10.3 9.8 9.6 9.4 Other Expenses (% of sales) 9.3 9.0 8.6 8.6 8.5 EBITDA Margin (%) 19.8 20.9 22.1 23.1 23.8 Tax Rate (%) 20.5 20.5 20.5 20.5 20.5 Source: HDFC sec Inst Research Change in Estimate
FY19E FY20E FY21E
New Old Change New Old Change New Old Change Net Revenue 89,587 88,582 1.1% 102,230 100,560 1.7% 116,529 115,375 1.0% EBITDA 19,786 19,194 3.1% 23,650 23,073 2.5% 27,721 27,447 1.0% APAT 16,860 16,543 1.9% 20,429 19,964 2.3% 24,247 24,153 0.4% EPS 9.6 9.4 1.9% 11.6 11.3 2.3% 13.8 13.7 0.4% Source: HDFC sec Inst Research
Mgt. Guidance Double digit growth in international business in FY19. Namaste should report positive growth after 2-3 years Internal target of 8-10% volume growth and low double digit value growth Gross margins are sustainable despite rising inflation Domestic EBITDA margins should stabilise at these levels, blended EBITDA margin would be marginally higher Tax rate would continue to be at MAT. Higher profits from international can result in lower tax rate in FY19 Currently distribution reach is at 1.05mn and can rise to 1.2mn Capex of Rs 2.5bn in FY19
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
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