Steady recovery in place; Accumulate January 31, 2018 Amnish Aggarwal amnishaggarwal@plindia.com +91 22 66322233 Nishita Doshi nishitadoshi@plindia.com +91 22 66322381 Rating Accumulate Price Rs354 Target Price Rs366 Implied Upside 3.4% Sensex 35,965 Nifty 11,028 (Prices as on January 31, 2018) Trading data Market Cap. (Rs bn) 623.4 Shares o/s (m) 1,759.1 3M Avg. Daily value (Rs m) 435.9 Major shareholders Promoters 68.05% Foreign 17.74% Domestic Inst. 8.47% Public & Other 5.74% Stock Performance (%) 1M 6M 12M Absolute 1.6 14.3 28.3 Relative (4.0) 3.7 (1.8) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2019 9.6 9.1 5.8 2020 11.2 10.5 6.8 Price Perf. (RIC: DABU.BO, BB: DABUR IN) (Rs) 400 350 300 250 200 150 100 50 0 Jan 17 Mar 17 May 17 Source: Bloomberg Jul 17 Sep 17 Nov 17 Jan 18 Dabur has shown 13% domestic volume growth on a low base even as FMCG growth in its categories has seen a slowdown since 1QFY18. Dabur is aiming for high single digit volume growth and flattish margins given rising input costs of crude, LLP and coconut oil. Dabur remains on strong wicket in core categories like Oral care, Hair Oils and Health Supplements, its facing headwinds in Foods and Skin Care. We believe Dabur needs a strong acquisition led push to fill in critical gap in the personal care portfolio to accelerate growth. Dabur expects GST e way bill led trade disruptions in 4Q even as currency loss in IBD is likely to reduce significantly to Rs250mn. We estimate 14% PAT CAGR over FY17 20. Dabur trades at 32.9xDec 19 EPS, which is at 10 15% discount to Marico and Emami. We value the stock at Rs366 based on 34xDec19 EPS. Maintain Accumulate. Concall Highlights: 1) FMCG Industry growth has slowed down from 13.1% in 1Q to 8.5% in 2Q and 5.7% in 3Q in categories where Dabur operates in 2) Dabur s Rural sales growth at 23% is far ahead than urban growth. 3) Naturals segment is growing at faster than market rates and its share in total market sales is expected to increase significantly 4) Dabur will focus more on above the line spends and lesser promotions 5) Modern trade and Super stockist channel grew 22.6% and 26% while Canteen sales declined 22.5% 6) CSD slowdown mainly impacted Chawyanprash, Amla hair oil and honey 7) Dabur plans to increase promotions in juices segment by taking a margin hit to ward off competitive threat from mid market players like Paper Boat 8) Honey has grown by 33% as it is recovering from Patanjali Impact 9) Dabur estimates a currency loss of Rs.250mn in Q4FY18 mainly due to stronger Rupee and currency issue in Turkey, currency translation loss was Rs900mn, Rs750mn and Rs660mn in first 3 quarters 10) Namaste business is likely to see steady revival after poor growth from past couple of years 11) Dabur does not intend to take a price increase in 4Q18 owing to Anti profiteering regulations, however FY19 might see some price increases if the input cost inflation sustains 12) Dabur has launched 10 medical products through the prescription route, initial response is encouraging Key financials (Y/e March) 2017 2018E 2019E 2020E Revenues (Rs m) 77,014 90,614 102,795 116,384 Growth (%) (8.9) 17.7 13.4 13.2 EBITDA (Rs m) 15,089 17,450 20,110 23,020 PAT (Rs m) 12,769 14,891 17,093 19,916 EPS (Rs) 7.2 8.4 9.6 11.2 Growth (%) 1.6 16.3 14.5 16.2 Net DPS (Rs) 2.3 3.4 4.0 3.4 Profitability & Valuation 2017 2018E 2019E 2020E EBITDA margin (%) 19.6 19.3 19.6 19.8 RoE (%) 28.1 26.0 25.6 25.3 RoCE (%) 31.7 31.1 30.9 30.9 EV / sales (x) 8.1 6.9 6.1 5.4 EV / EBITDA (x) 41.5 35.9 31.3 27.3 PE (x) 49.0 42.1 36.8 31.7 P / BV (x) 12.4 10.8 9.4 8.0 Net dividend yield (%) 0.6 1.0 1.1 1.0 Source: Company Data; PL Research Q3FY18 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Q3FY18 Results Consolidated (Rs m): Sales up 6.1% led by 13% volume growth; Adj PAT up 13% Y/e March Q3FY18 Q3FY17 YoY gr. (%) Q2FY18 9MFY18 9MFY17 YoY gr. (%) Net Sales 19,664 18,529 6.1 19,589 57,154 57,868 (1.2) Gross Profit 10,141 9,146 9,818 28,714 29,197 % of NS 51.6 49.4 2.2 50.1 50.2 50.5 0.2 Other Expenses 6,106 5,807 5.1 5,619 17,391 18,283 (4.9) % of NS 31.1 31.3 28.7 30.4 31.6 EBITDA 4,035 3,339 20.8 4,199 11,323 10,914 3.7 Margins (%) 20.5 18.0 2.5 21.4 19.8 18.9 1.0 Depreciation 405 333 21.6 401 1,196 1,033 15.7 Interest 132 139 (5.2) 133 398 424 (6.0) Other Income 663 831 (20.1) 843 2,319 2,333 (0.6) PBT 4,162 3,697 12.6 4,508 12,048 11,790 2.2 Tax 833 753 10.7 880 2,301 2,327 (1.1) Tax rate (%) 20.0 20.4 19.5 19.1 19.7 Minority interest (2) (2) NA 2 (4) (3) NA Adjusted PAT 3,330 2,947 13.0 3,627 9,751 9,467 3.0 Consolidated Sales grew 6.1% led by 13% volume growth in domestic FMCG business. Domestic Comparable sales (Adj for GST) grew 17.7%. CONSOL comparable sales (GST & Currency translation loss of Rs660mn) grew 12.9% Gross margins expanded 220bps at 51.6% due to benign input costs and price increases initiated during the course of year EBITDA grew by 20.8% to 4.04bn and margins improved 250bps to 20.5% aided by decline of 10bps in ad spends and 40bps in other expenses. Adj PAT increased 13% to Rs3.33bn as tax rate declined 30bps to 20% Domestic Home & Personal Care posted a growth of 22.9%, Health care sales grew 16.6% YoY, while foods sales remained flat during Q3 primarily on account of high base (52% growth in Q3FY17). Toothpaste grew 26%, Hair oil sales grew 16.7%, Shampoos grew by 56% driven by re launch of Vatika Shampoo, Home care 36% led by strong performance of Odonil and Sanifresh, Skin care grew 14.5%, Health care grew 16.6%, Health Supplements grew 19.5% (led by Chawyanprash & Honey), OTC grew by 8.7%, Digestives grew 19.3% led by Hajmola and Pudin Hara. International business grew 5% despite continuing geopolitical headwinds in North Africa and impact of currency devaluation in Middle East and slow sales of Namaste in USA. The currency devaluation loss was Rs660mn and impacted sales to the extent of 3.6% on a consolidated basis. Dabur has declared an interim dividend of Rs 1.25/share January 31, 2018 2
Exhibit 2: Domestic FMCG Volume up 13% on a low base (%) 14.0 12.0 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) (6.0) 8.7 Sep 14 7.4 Dec 14 8.1 8.1 Mar 15 Jun 15 5.0 Sep 15 2.5 Dec 15 7 Mar 16 4.1 Jun 16 4.5 Sep 16 5 Dec 16 2.4 Mar 17 4.4 Jun 17 7.2 Sep 17 13 Dec 17 Exhibit 3: Shampoos, Toothpaste, Digestive, Home care outperform; OTC, Skin care and Food drag growth Sales Growth (%) 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Hair Care 9.4 N.A 10.0 N.A 4.5 20.0 4.0 11.0 N.A N.A Hair Oils 14.0 2 8.2 3.0 6.0 NA NA NA 2.3 16.7 Shampoos 0.0 0.0 N.A N.A 2.7 NA NA 15.0 14.9 56.0 Health Supplements 9.0 7.1 N.A 0.0 N.A 14.0 5.0 7.0 3.0 19.5 Oral Care 18.7 10.5 18.3 11.6 0.0 5.0 N.A 1.5 22.8 23.0 Toothpaste 28.1 15.5 20.3 12.8 4.0 NA 9.0 10.4 26.4 26.0 Foods 2.4 23.7 11.7 4.3 15.2 52.0 10.0 8.3 11.7 Flat Digestives 1.6 2.4 6.5 N.A N.A 10.0 5.0 4.0 11.7 19.3 Skin care 2.2 9.5 NA NA 7.0 11.0 0.0 4.0 15.8 14.5 Home Care 12.4 8.4 19.3 2.0 20.0 5.0 6.5 6.2 10.1 36.0 OTC & Ethicals 10.8 7.5 7.1 N.A 11.3 11.0 4.0 6.6 5.5 8.7 Exhibit 4: Egypt and Sub Saharan Africa witness double digit growth; GCC grew substantially; Turkey hit by currency weakness IBD Sales Growth (%) 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Organic Constant Currency 13.3 10.4 6.0 2.3 0.0 4.5 2.2 3.9 5.0 Egypt 7.0 27.0 25.0 19.0 29.0 19.0 3.0 37.9 45.5 GCC 10.0 5.0 NA NA 19.0 NA 13.0 4.0 20.0 Nepal NA 19.6 27.4 19.0 50.4 16.0 NA 12.3 18.0 Turkey 14.0 8.5 17.5 9.6 19.0 16.0 7.0 27.3 2.8 SAARC 15.0 Pakistan 19.0 12.3 18.1 Sub Saharan Africa 59.0 30.1 23.6 January 31, 2018 3
Income Statement(Rs m) Net Revenue 77,014 90,614 102,795 116,384 Raw Material Expenses 38,432 42,285 48,240 54,689 Gross Profit 38,582 48,328 54,555 61,695 Employee Cost 7,896 9,244 10,332 11,551 Other Expenses 15,597 21,634 24,113 27,124 EBITDA 15,089 17,450 20,110 23,020 Depr. & Amortization 1,429 1,605 1,793 1,997 Net Interest 540 195 165 165 Other Income 2,984 3,122 3,739 4,564 Profit before Tax 16,104 18,773 21,891 25,422 Total Tax 3,303 3,848 4,761 5,466 Profit after Tax 12,801 14,924 17,129 19,956 Ex Od items / Min. Int. (2,974) 33 36 40 Adj. PAT 12,769 14,891 17,093 19,916 Avg. Shares O/S (m) 1,764.1 1,769.1 1,774.1 1,779.1 EPS (Rs.) 7.2 8.4 9.6 11.2 Cash Flow Abstract(Rs m) C/F from Operations 13,734 15,094 17,194 18,923 C/F from Investing (6,369) (7,773) (9,803) (12,406) C/F from Financing (7,687) (6,981) (7,499) (5,021) Inc. / Dec. in Cash (322) 340 (108) 1,496 Opening Cash 1,374 1,743 2,774 2,667 Closing Cash 1,053 2,083 2,666 4,163 FCFF 13,132 14,385 16,568 18,499 FCFE 8,721 13,885 16,068 18,999 Key Financial Metrics Growth Revenue (%) (8.9) 17.7 13.4 13.2 EBITDA (%) (0.7) 15.6 15.2 14.5 PAT (%) 1.9 16.6 14.8 16.5 EPS (%) 1.6 16.3 14.5 16.2 Profitability EBITDA Margin (%) 19.6 19.3 19.6 19.8 PAT Margin (%) 16.6 16.4 16.6 17.1 RoCE (%) 31.7 31.1 30.9 30.9 RoE (%) 28.1 26.0 25.6 25.3 Balance Sheet Net Debt : Equity Net Wrkng Cap. (days) 18 17 18 17 Valuation PER (x) 49.0 42.1 36.8 31.7 P / B (x) 12.4 10.8 9.4 8.0 EV / EBITDA (x) 41.5 35.9 31.3 27.3 EV / Sales (x) 8.1 6.9 6.1 5.4 Earnings Quality Eff. Tax Rate 20.5 20.5 21.8 21.5 Other Inc / PBT 18.5 16.6 17.1 18.0 Eff. Depr. Rate (%) 4.8 5.0 5.3 5.6 FCFE / PAT 68.3 93.2 94.0 95.4. Balance Sheet Abstract(Rs m) Shareholder's Funds 50,295 57,988 66,580 79,257 Total Debt 3,500 3,000 2,500 3,000 Other Liabilities 1,089 1,206 1,335 1,477 Total Liabilities 54,884 62,195 70,416 83,735 Net Fixed Assets 20,485 20,880 21,087 21,090 Goodwill Investments 30,485 36,258 44,061 54,467 Net Current Assets 3,914 5,057 5,268 8,178 Cash & Equivalents 1,743 2,774 2,667 4,162 Other Current Assets 22,323 25,496 28,744 32,378 Current Liabilities 20,152 23,213 26,143 28,362 Other Assets Total Assets 54,884 62,194 70,416 83,734 Quarterly Financials(Rs m) Y/e March Q4FY17 Q1FY18 Q2FY18 Q3FY18 Net Revenue 19,147 17,901 19,589 19,664 EBITDA 4,176 3,089 4,199 4,035 % of revenue 21.8 17.3 21.4 20.5 Depr. & Amortization 395 391 401 405 Net Interest 117 133 133 132 Other Income 650 813 843 663 Profit before Tax 4,314 3,378 4,508 4,162 Total Tax 977 589 880 833 Profit after Tax 3,076 2,671 3,591 3,056 Adj. PAT 3,331 2,794 3,627 3,330 Key Operating Metrics Standalone Sales growth % 0.7 11.3 12.9 12.5 EBITDA growth % 8.7 10.4 13.1 12.6 Adj. PAT 10,708 11,799 13,315 15,018 Adj. PAT growth % 14.3 10.2 12.9 12.8 EPS 6.1 6.7 7.5 8.4 Subsidiaries Sales growth % (10.7) 11.2 14.5 14.5 EBITDA growth % 0.3 21.3 21.8 19.7 Adj. PAT 2,444 3,034 3,760 4,553 Adj. PAT growth % (6.9) 24.2 23.9 21.1 EPS 1.4 1.7 2.1 2.6. January 31, 2018 4
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