Dabur India (DABIND) 304

Transcription

1 Rating matrix Rating : Buy Target : 338 Target Period : 12 months Potential Upside : 11% What s changed? Target Changed from 304 to 338 EPS FY17E Changed from 7.9 to 8.0 EPS FY18E Changed from 8.6 to 9.4 Rating Unchanged Quarterly performance Q1FY17 Q1FY16 YoY (%) Q4FY16 QoQ (%) Sales EBITDA EBITDA (%) bps bps PAT Key financials Crore FY15 FY16 FY17E FY18E Net Sales 7, , , ,536.4 EBITDA 1, , , ,990.9 Net Profit 1, , , ,646.7 EPS ( ) Valuation summary FY15 FY16 FY17E FY18E P/E Target P/E Div. Yield Mcap/Sales RoNW (%) RoCE (%) Stock data Particular Amount Market Capitalization ( Crore) 51,641.1 Total Debt (FY16) ( Crore) Cash and Investments (FY16) ( Crore) EV ( Crore) 51, week H/L 320 / 232 Equity capital Crore Face value 1 Price performance 1M 3M 6M 12M Dabur Marico GCPL HUL Research Analyst Sanjay Manyal sanjay.manyal@icicisecurities.com Parth Joshi parth.joshi@icicisecurities.com July 28, 2016 Dabur India (DABIND) 304 Safe bet on natural consumer business Dabur reported muted numbers on the sales front for Q1FY17 with growth of 1.2% YoY to crore whereas operational performance came in ahead of our expectations. The underlying volume growth stood at 4.1%. Adjusting for the impact of Ind AS, net sales came in at crore (I-direct estimate: 2264 crore) The domestic business grew by 0.5% YoY led by growth of 11.6%, 4.3%, 2% growth in oral care, foods & home care segments, respectively. However, skin care, digestives, OTC, hair care segments witnessed a subdued performance. Health supplements reported volume growth of 6.7% but flattish sales growth EBITDA margins improved 130 bps to 17.9% (I-direct estimate: 16.2%) mainly due to judicious A&P (down 161 bps as percentage of sales) & soft input costs (down 106 bps as percentage of sales). However, higher employee cost partially offset the above savings PAT increased 11.8% YoY to crore (I-direct estimate: crore) aided by higher EBITDA & 27.8% YoY increase in other income to 61 crore Presence in niche categories to aid in steady revenue growth Dabur India (DIL) has a strong portfolio of brands (Dabur Chyawanprash, Real, Hajmola, Vatika, Amla, Fem, Honey, Meswak, Dabur Red) with the focus largely on ayurvedic & healthcare offerings. The company s diverse product portfolio (hair care, oral care, skin care, home care, health supplements, digestives, OTC & ethicals) and presence in niche categories has aided revenue growth at a robust 18.6% CAGR in FY Led by DIL s brand strength in higher growth niche segments & further strengthening of the portfolio through new launches focusing on healthcare, we estimate revenue growth at 10.8% CAGR in FY16-18E. Direct beneficiary of normal monsoon with strong presence in rural areas In the last few years (FY11-15), DIL has augmented its rural reach from ~14,000 villages to ~45,000 villages through its Project Double. The initiative played out extremely well for DIL by increasing contribution to booming rural demand in revenues to 45% from ~30% earlier. It also aided in maintaining volume growth at 8-11%. Going forward, it intends to reach ~60000 villages by FY17E. With monsoons progressing in a normal manner, we expect DIL to capitalise on a revival in rural consumption as a result of this presence in rural India. Also, with DIL planning to increase its healthcare offerings, it is aiming to increase its urban coverage by capturing the untapped chemist network through a new initiative called Project CORE. It has increased its chemist network reach from ~31000 (FY13) to ~75000 in FY15. Quarterly blip does not impact long term growth potential; maintain BUY Since its inception, DIL has efficiently leveraged ayurveda & herbal product offerings to its advantage. DIL s portfolio of traditional products, the category that has piqued consumer interest in recent times, straddles from Meswak, premium herbal toothpaste, to recently launched Hajmola Yoodley, an ethnic beverage to capture fast growing segment of traditional beverages. Thus, we believe DIL is in a healthy position to capitalise on tailwinds generated for demand of ayurvedic & herbal products in the Indian FMCG market. We expect DIL to clock sales growth of 10.8% CAGR in FY16-18E on the back of ~8% volume growth. We estimate earnings CAGR of 14.7% in FY16-18E. We reiterate BUY recommendation on the stock with a target price of 338/share. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q1FY17 Q1FY17E Q1FY16 YoY (%) Q4FY16 QoQ (%) Comments Net Sales 1, , , , Dabur reported tepid net sales growth of 1.2% on the back of 4.1% volume Operating Income growth in its India FMCG business. Oral care, foods & home care segment grew 11.6%, 4.3% & 2%, respectively. Foods business reported volume growth of 7% while health supplements' volumes grew 6.7% but sales came in flat. Skin care, digestives & OTC segments reported a decline in sales Raw Material Expenses , Raw material cost for the company dipped 106 bps as a percentage of sales due to benign commodity prices Employee Expenses Employee cost increased 105 bps as percentage of sales SG&A Expenses A&P spend declined 161 bps as percentage of sales Other operating Expenses EBITDA EBITDA Margin (%) bps bps Operating margins improved 130 bps mainly due to lower A&P Depreciation Interest Other Income PBT Tax Outgo PAT Higher EBITDA as well as higher other income drove PAT by 11.8% YoY Key Metrics YoY growth (%) Volume Growth 4.1 NA Standalone sales growth Dabur Honey range was extended to premium honey fruit spreads priced at & for 170 gm & 370 gm, respectively. Real VOLO, a carbonated fruit-based drink was launched at 40 for 250 ml can. Mosambi variant was added to Real fruit juice range while mixed fruit variant was added to Real Activ range Subsidiary's sales growth Dermoviva facial fluids, Dermoviva body lotion, Dermoviva face cream & Hazmazza saw addition of variants in Q1FY17 Change in estimates FY17E FY18E ( Crore) Old New % Change Old New % Change Comments Sales 9, , We have incorporated impact of Ind AS in our sales & margins estimates EBITDA 1, , EBITDA Margin (%) bps bps PAT 1, , EPS ( ) Assumptions Current Earlier FY14 FY15E FY16E FY17E FY18E FY16E FY17E FY18E Std. Sales ( crore) 4, , , , , , , ,769.3 Volume Growth (%) NA NA NA NA NA NA Subs. Sales ( crore) 2, , , , , , , ,424.6 RM exp. To sales % Adex to sales % Interest Cost ( crore) ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Revenue growth to remain stable largely led by volumes & initiatives DIL s revenue growth has remained robust at 18.6% CAGR (FY09-15) buoyed by its diverse & niche product portfolio, a slew of product launches and synergistic inorganic acquisitions (Fem in FY09, Namaste in FY11, Hobi in FY11) both in the domestic as well as international markets. Even in a slowing consumer demand scenario from H2FY13, DIL managed to maintain its healthy revenue growth of 12-16% led by volume growth of 8-11% until Q2FY16. The slowdown, however, largely impacted the company s hair oil (segment as a whole witnessing stagnation in growth) & skin care growth (impacted by lower discretionary demand). Of late, there was intense competition in health supplements (Dabur Chyawanprash, Dabur Honey) mainly due to entry of Patanjali (while keeping the oral care (Meswak & Dabur Red), home care (Odonil, Odomos), foods (Real, Real Activ), digestive (Hajmola) and OTC & ethicals portfolio growth healthy. DIL launched Project 50:50 in FY15 wherein it will focus on top 130 cities in India that contribute 50% of urban consumption to drive revenues. Under this initiative, Dabur will split the sales team for wholesale & retail channels to better tap the demand in urban markets. According to the company, most of these cities are in South India, which contribute 15-20% of total revenue for Dabur. Dabur launched Project LEAD in FY16 under which front-end teams will be separated for healthcare & other domestic FMCG business to enable better focus on these segments. For this purpose, DIL would hire ~275 medical representatives. DIL expects annual cost of ~ crore towards Project LEAD. Dabur forayed into the ayurvedic hair oil segment with the launch of Keratex (previously a pharma product but now an OTC product) in FY15. DIL launched Dabur Honey fruit spread (four variants), carbonated fruitbased beverage Real VOLO, additional variants under Real & Real Activ fruit juices in domestic market & additional variants under Dermoviva facial fluids, body lotion, face cream & under Hazmazza in international markets in Q1FY17. Riding on the back of promotions, DIL s entry into honey fruit spreads is expected to drive premiumisation in the honey segment and hence, combat an indigenous rival that has entered honey category with deep discount pricing model. Going ahead, we believe the company s increasing focus on innovations and strengthening presence both in rural and urban India would aid volumes. We expect revenue growth at 10.8% CAGR in FY16-18E, largely led by volumes. Exhibit 1: Revenues ( crore) and revenue growth (%) trend FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E Sales ( crore) Sales growth (%) ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 2: Category wise revenue growth in percentage (YoY) Q3FY13Q4FY13 FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Hair Care NA Oral Care Health Supp NA NA Digestives NA Skin Care NA NA Home Care Foods OTC & Ethicals NA Retail NA NA NA NA NA NA NA NA NA NA Exhibit 3: EBITDA margin (%), RM cost to sales (%) and adex to sales (%) trend EBITDA margins to remain healthy at 20.7% by FY18E DIL s margins have remained at higher levels of 16-18% since FY08 led by the company s strong brand equity in the healthcare space of the FMCG segment. Along with a changing sales mix (more towards the products witnessing constant demand than seasonal demand), Dabur has efficiently managed its raw material expenses and marketing expenses in order to sustain its margins. Going ahead, with continued focus on the healthcare portfolio, aggressive expansion through new launches, expansion in reach & change in sales mix, we believe margins would remain sturdy at 20.7% by FY18E. We believe that aided by the company s ability to sustain a high brand equity in its segments, fluctuations in raw material cost, if any, will be absorbed efficiently without impacting margins. However, we believe that any savings in raw material costs would be directed towards higher advertisement & promotion expenses FY09 FY10 FY11 FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 FY14 FY15 FY16 FY17E FY18E 0 RM Cost to Sales EBITDA Margins Adex to Sales ICICI Securities Ltd Retail Equity Research Page 4

5 Expansion in distribution network to augur well for future DIL has efficiently expanded its distribution network in rural India through Project Double since FY11. Through Project Double, the company expanded its reach from ~14000 villages in FY11 to ~45000 villages in FY15. The extension in rural India paid off well for the company in capturing booming rural demand in India in FY With initial signs of softening rural demand following a weak economic scenario and slow urban demand recovery, going ahead, the company limited its rural reach since FY14, and now plans to consolidate its position further. It plans to increase the number of SKUs in existing rural distribution centres and increase its offerings in existing rural markets along with a few new launches. Dabur plans to extend its rural reach to ~60,000 villages by FY17E. On the urban front, DIL is aiming to increase its presence in the chemist channels of distribution considering the healthcare focus of the company s portfolio. Following the target to increase chemist coverage, DIL launched Project CORE Chemist Outlet and Range Expansion in FY14. Further, the company increased its chemist distribution points from ~31,000 outlets (FY13) to ~75,000 outlets in FY15. Dabur launched Project LEAD Leveraging through Empowered Anchoring & Detailing in Q1FY16 under which the front end teams will be separated for healthcare (OTC & ethicals) and other domestic FMCG business to enable better focus on these segments. With DIL s strength of implementation, we believe the company s constant focus on managing sales and distribution efficiently in both urban and rural markets along with a strong innovation pipeline, revenue and margin growth would continue to remain stable. Ayurveda, herbal products remain ace up Dabur s sleeve Dabur, having been present in India for more than 125 years, has built its strong edifice by leveraging on Ayurveda & herbal product offerings. The recent rise of Patanjali Ayurveda has been able to garner public attention towards herbal offerings & products of Ayurvedic origin. Though it has resulted in disruptive competition in many categories in which the company is present, we believe Dabur is well equipped with its array of brands with high consumer recall to counter its rivals. DIL s portfolio of traditional products, the category that has piqued consumer interest in recent times, straddles from Meswak, a premium toothpaste under the herbal segment, to the recently launched Hajmola Yoodley, an ethnic beverage to capture the fast growing segment of traditional beverages. Thus, we believe that on the back of strong brand equity enjoyed by its products, DIL is in a healthy position to capitalise on the tailwinds generated for demand of Ayurvedic & herbal products in the Indian FMCG market due to the Patanjali phenomenon. ICICI Securities Ltd Retail Equity Research Page 5

6 Outlook & valuation We believe DIL s strong and niche product portfolio would continue to generate stable revenue and earnings growth at 10.8% and 14.7% CAGR in FY16-18E. Further, the increase in distribution expansion and constant innovation would be catalysed if there is a revival in consumer demand. We believe that given the diverse product portfolio, the company s margins would remain sustainable and less prone to fluctuations in raw material prices. Hence, we remain positive on the long term outlook of the company. The only concern for us remains the challenging near term consumer demand scenario. However, the progress of monsoon as per expectations and other government measures to kick start rural growth engine remain key triggers to a rural demand revival in the medium-term. Successful resolution of the Nepal border blockade issue has relieved DIL of the hiccups it faced in sales growth in FY16. We believe that continuous innovation to counter moderating growth and aggressive expansion in distribution network would lead to stable volume growth, going forward. We believe sales growth in the domestic business would revive, going forward and expect robust margins at 20.7% by FY18E. Given DIL s strong brands & market development of the niche segments (packaged foods & juices, health supplements) and revival in urban demand, valuation multiples will command a premium to its historic averages. We value the stock at 36x FY18E EPS of 9.4 and arrive at a target price of 338. We maintain BUY recommendation. Exhibit 4: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY FY FY17E FY18E ICICI Securities Ltd Retail Equity Research Page 6

7 Recommendation history vs. Consensus ( ) Jul-14 Sep-14 Dec-14 Feb-15 May-15 Jul-15 Oct-15 Dec-15 Mar-16 May-16 Jul (%) Source: Bloomberg, Company, ICICIdirect.com Research Price Idirect target Consensus Target Mean % Consensus with BUY Key events Date Event Nov-08 Acquisition of the company's largest skin care brand 'Fem' from Fem Care Pharma marking its entry in the high growth skin care segment Jul-09 Rise in stock price following the increase in FMCG Index led by attractiveness of defensives in the economic downturn Apr-10 Consistent 18-20% revenue growth with improvement in margins to ~20% tapping the revival in consumption demand Enters Turkey through acquisition of Hobi Kozmetik for 324 crore. Acquisition is in line with the company's strategy of strengthening its presence in Middle East & Jul-10 North Africa Sep-10 Dabur issues bonus in the ratio of 1:1 Acquires US based personal care firm Namaste Laboratories LLC for 451 crore. Acquisition marked Dabur's entry into US$1.5 billion hair care markets of US, Jan-11 Europe and Africa Mar-11 Launches 'Project Double' to double its direct reach in villages and to tap the growing aspirational demand of rural consumers May-12 Stock performance remaines lacklusture due to falling domestic revenues, declining margins and no significant innovations In a grim economic scenario, ability to grow in double digits (volume) along with improvement in margins and market share gains across categories made it the top May-13 preferred stock in the FMCG pack Mar-14 Launches 'Project CORE' to increase its distribution footprint in the chemist channel Jun-15 Launches 'Project LEAD' to enable better focus on healthcare (OTC & ethicals) & other domestic FMCG business Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Chowdhry Associates 31-Mar VIC Enterprises Pvt. Ltd. 31-Mar Gyan Enterprises Pvt. Ltd. 31-Mar Puran Associates Pvt. Ltd. 31-Mar Ratna Commercial Enterprises Pvt. Ltd. 31-Mar Milky Investment & Trading Co., 31-Mar Life Insurance Corporation of India 31-Mar Burmans Finvest Pvt. Ltd. 31-Mar Matthews International Capital Management, L.L.C. 31-Mar First State Investments (HK) Ltd. 31-Mar Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Promoter FII DII Others Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares APG Asset Management 13.99m 3.34m Harding Loevner LP m -5.29m ÖKOWORLD LUX S.A. 9.41m 2.27m Aberdeen Asset Management (Asia) Ltd m -3.73m Norges Bank Investment Management (NBIM) 7.8m 1.86m Grantham Mayo Van Otterloo & Co LLC -5.79m -1.66m Pictet Asset Management Ltd. 4.75m 1.26m Schroder Investment Management (Hong Kong) Ltd. -2.4m -0.64m DNB Asset Management (Asia) Limited 4.07m 0.94m Handelsbanken Asset Management -2.19m -0.53m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 7

8 Financial summary Profit and loss statement Crore (Year-end March) FY15 FY16 FY17E FY18E Net Sales Growth (%) Raw Material Expenses 3, , , ,665.6 Employee Expenses Marketing Expenses 1, Administrative Expenses Other expenses , ,106.7 Total Operating Expenditure 6, , , ,565.4 EBITDA Growth (%) Depreciation Interest Other Income PBT 1, , , ,058.4 Others Total Tax PAT Growth (%) Adjusted EPS ( ) Cash flow statement Crore (Year-end March) FY15 FY16 FY17E FY18E Profit before Tax 1, , , ,058.4 Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Others CF from operating activities 1, , ,459.2 (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec. premium Others CF from financing activities Net Cash flow Opening Cash Closing Cash Balance sheet Crore (Year-end March) FY15 FY16 FY17E FY18E Liabilities Equity Capital Reserve and Surplus 3, , , ,717.9 Total Shareholders funds 3, , , ,893.9 Long Term Loans Long Term Provisions Minority Interest / Others Total Liabilities 3, , , ,364.5 Assets Gross Block 2, , , ,489.3 Less: Acc Depreciation , ,193.3 Net Block 1, , , ,296.0 Capital WIP Non- Current Investments 1, , , ,087.3 LT loans & advances Other Non-current Assets Current Assets Inventory , , ,404.0 Debtors ,086.1 Cash & Bank ST Loans & Advances Other Current Assets Current Liabilities Creditors 1, , , ,245.0 ST Borrowings Other CL Net Current Assets , ,703.5 Total Assets 3, , , ,364.5 Key ratios (Year-end March) FY15 FY16 FY17E FY18E Per share data ( ) Adjusted EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) PBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 8

9 ICICIdirect.com coverage universe (FMCG) CMP M Cap EPS ( ) P/E (x) Price/Sales (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E Colgate (COLPAL) Buy 22, Dabur India (DABIND) Buy 2, GSK CH (GLACON) 6,353 6,966 Buy 24, Hindustan Unilever (HINLEV) 909 1,000 Buy 195, ITC Limited (ITC) Buy 301, Jyothy Lab (JYOLAB) Hold 5, Marico (MARIN) Buy 33, Nestle (NESIND) 7,237 6,615 Buy 57, Tata Global Bev (TATTEA) Hold 7, VST Industries (VSTIND) 1,954 1,931 Buy 2, ICICI Securities Ltd Retail Equity Research Page 9

10 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 10

11 ANALYST CERTIFICATION We /I, Sanjay Manyal, MBA (Finance) and Parth Joshi, MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH ICICI Securities is full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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