Worst is over; Accumulate October 31, 2017 Amnish Aggarwal amnishaggarwal@plindia.com +91 22 66322233 Gaurav Jogani gauravjogani@plindia.com +91 22 66322238 Rating Accumulate Price Rs333 Target Price Rs342 Implied Upside 2.7% Sensex 33,213 Nifty 10,335 (Prices as on October 31, 2017) Trading data Market Cap. (Rs bn) 586.0 Shares o/s (m) 1,759.1 3M Avg. Daily value (Rs m) 332.7 Major shareholders Promoters 68.05% Foreign 17.65% Domestic Inst. 8.18% Public & Other 6.12% Stock Performance (%) 1M 6M 12M Absolute 9.2 16.2 14.0 Relative 3.0 5.2 (4.9) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2018 8.4 7.9 6.6 2019 9.6 9.0 6.6 Price Perf. (RIC: DABU.BO, BB: DABUR IN) (Rs) 350 300 250 200 150 100 50 0 Oct 16 Dec 16 Source: Bloomberg Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Dabur has given cautiously optimistic growth outlook given 7.2% volume growth in 2Q and expected pickup in rural demand. Dabur expects flat margins in near term and sustained expansion once the sales growth revives over coming 2/3 quarters. Headwinds like GST led trade disruptions, Patanjali s onslaught and currency and demand issues in IBD have peaked out which should enable Dabur to post steady improvement in coming quarters. Dabur has also increasing its pace of new launches, the success of these can further accelerate growth. We estimate 14% PAT CAGR over FY17 20. We value the stock at Rs342 based on 33xSept19 EPS (Rs328 based on 33xJune19 EPS earlier). Maintain Accumulate. Concall Highlights: 1) Q2 saw 7.2% volume growth even as underlying demand conditions remain tepid. Rural sales grew 11% while urban sales grew 10% 2) Rural growth is expected to increase on demand stimulus expectations ahead of elections 3) Urban Wholesale and CSD declined 5% and 10% while Modern trade and Super stockist channel grew 21% and 15% 4) CSD is unlikely to come back as quantity restrictions and smart cards will permanently reset base 5) Dabur has increased trade margins by 0.5% post GST 6) Hair Oil segment is witnessing down trading and Dabur is actively pushing Rs.10 and Rs.15 packs to reignite growth 7) Dabur will rebrand its Juice drink offering to Koolerz from Juicy targeting south India and will look to utilise spare capacity in Srilanka 8) Oral care category continued growth momentum and gained 90bps share, Dabur Red now forms 60% of Oral care sales and it will be looking for a new launch in this category by end of Q4 9) Gross margins and EBITDA margins are expected to remain flat in the near term as the focus will be on volume growth, margins are expected to improve once the volume growth revives 10) IBD is expected to high single digit growth in 2HFY18 on back of anniversarisation of currency depreciation in Egypt and demand pick up in GCC barring MENA region. Key financials (Y/e March) 2016 2017 2018E 2019E Revenues (Rs m) 84,540 77,014 90,614 102,795 Growth (%) 8.0 (8.9) 17.7 13.4 EBITDA (Rs m) 15,198 15,089 17,450 20,110 PAT (Rs m) 12,527 12,769 14,891 17,093 EPS (Rs) 7.1 7.2 8.4 9.6 Growth (%) 17.4 1.8 16.1 14.5 Net DPS (Rs) 2.5 2.3 3.4 4.0 Profitability & Valuation 2016 2017 2018E 2019E EBITDA margin (%) 18.0 19.6 19.3 19.6 RoE (%) 30.7 28.1 26.0 25.6 RoCE (%) 32.2 31.7 31.1 30.9 EV / sales (x) 7.0 7.7 6.5 5.7 EV / EBITDA (x) 39.0 39.4 33.8 29.4 PE (x) 46.8 46.0 39.6 34.6 P / BV (x) 14.1 12.1 10.2 8.9 Net dividend yield (%) 0.8 0.7 1.0 1.2 Source: Company Data; PL Research Q2FY18 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: Q2FY18 Results Consolidated (Rs m): Domestic Comparable sales up 10% led by 7.2% volume growth Y/e March Q2FY18 Q2FY17 YoY gr. (%) Q1FY18 H1FY18 H1FY17 YoY gr. (%) Net Sales 19,589 19,816 (1.1) 17,901 37,490 39,339 (4.7) Gross Profit 9,818 10,142 (3.2) 8,755 18,573 20,051 % of NS 50.1 51.2 48.9 49.5 51.0 Other Expenses 5,619 6,055 (7.2) 5,666 11,285 12,476 (9.5) % of NS 28.7 30.6 31.7 30.1 31.7 EBITDA 4,199 4,087 2.7 3,089 7,288 7,575 (3.8) Margins (%) 21.4 20.6 17.3 19.4 19.3 Depreciation 401 357 12.1 391 791 701 13.0 Interest 133 166 (19.8) 133 266 284 (6.4) Other Income 843 893 (5.5) 813 1,656 1,503 10.2 PBT 4,508 4,456 1.2 3,378 7,886 8,093 (2.5) Tax 880 873 0.7 589 1,468 1,574 (6.7) Tax rate (%) 19.5 19.6 17.4 18.6 19.5 Minority interest 2 1 (322.2) 5 3 2 66.7 Adjusted PAT 3,627 3,584 1.2 2,794 6,421 6,520 (1.5) Dabur posted 1.2% PAT increase (est. 6.3%) as Sales de grew by 1.1% (est 7.5%) despite a 7.2% (est 6%) volume increase in domestic FMCG business. Comparable sales adjusted for GST and currency translation was at 8% Consumer care and Retail sales declined 2% YoY and 6.8% YoY respectively, while foods and Others segment reported 4.9% and 5.9% sales increase respectively. Oral care, Skin care & Salon, Digestives and Foods business reported 23%, 16% and 12%, 12% growth respectively. IBD sales was impacted due to Currency depreciation in Egypt, Turkey and Nigeria and geo political issues in these geographies Gross margins declined by 110bps at 50.1% due to deterioration of sales mix, increase in input costs and higher consumer promotion. EBIDTA increased by 2.7% to Rs. 4.2bn (est Rs 4.34bn) as margins at 21.4% have increased by 80bps YoY aided by 10bps decline in ad spends, 50bps in staff cost and 130bps in other expenses 12.1% increase in Depreciation and 19.8% decline in interest expense couldn t neutralized 5.5% decline in other income limiting PBT increase to 1.2% Adj PAT at Rs 3.627bn (Est Rs3.8bn) increased by 1.2% as tax rate declined by 10bps to 19.5% Dabur has declared an interim dividend of Rs 1.25/share October 31, 2017 2
Exhibit 2: Domestic FMCG Volume up7.2% as consumer demand seen improving 10.0 8.0 6.0 4.0 2.0 8.8 8.7 7.4 8.1 8.1 5.0 7 4.1 4.5 2.4 7.2 (2.0) (4.0) (6.0) 2.5 5 4.4 June 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 (%) Exhibit 3: Toothpaste, Digestive, Skin care and Home care outperform, Hair Care, OTC& health supplement remain subdued Sales Growth (%) % of Sales 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Hair Care 20.0 9.4 NA NA NA 4.5 20.0 4.0 11.0 N.A Hair Oils 14 2 8.2 (3.0) 6.0 N.A NA NA 2.3 Shampoos NA NA NA ve 2.7 N.A NA 15.0 14.9 Health Supplements 15.0 9 7.1 N.A 0.0 N.A 14.0 5.0 7.0 3.0 Oral Care 19.0 18.7 10.5 18.3 11.6 0.0 5.0 N.A 1.5 22.8 Toothpaste 28.1 15.5 20.3 12.8 4.0 N.A 9.0 10.4 26.4 Foods 19.0 2.4 23.7 11.7 4.3 15.2 52.0 10.0 8.3 11.7 Digestives 6.0 1.6 2.4 6.5 ve N.A 10.0 5.0 4.0 11.7 Skin care 5.0 2.2 9.5 N.A N.A 7.0 11.0 0.0 4.0 15.8 Home Care 8.0 12.4 8.4 19.3 2.0 20.0 5.0 6.5 6.2 10.1 OTC & Ethicals 9.0 10.8 7.5 7.1 ve 11.3 11.0 4.0 6.6 5.5 Exhibit 4: Egypt, Turkey and Nigeria witness double digit growth; GCC remains pain point IBD Sales Growth (%) 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Organic Constant Currency 8.8 13.3 10.4 6.0 2.3 0.0 4.5 2.2 3.9 Egypt NA 7 27.0 25.0 19.0 29.0 19.0 3.0 37.9 GCC 9 10 5.0 N.A N.A 19.0 NA 13.0 4.0 Levant NA NA NA N.A N.A NA NA NA N.A Bangladesh 2.7 15.2 8.4 N.A N.A 17.5 2.0 N.A N.A Nepal 15.3 NA 19.6 27.4 19.0 50.4 16.0 N.A 12.3 Turkey 22.2 14 8.5 17.5 9.6 19.0 16.0 7.0 27.3 North America 35 8.0 N.A N.A SAARC 15.0 N.A Pakistan 19.0 12.3 Nigeria 59.0 30.1 October 31, 2017 3
Income Statement(Rs m) Net Revenue 84,540 77,014 90,614 102,795 Raw Material Expenses 37,970 38,432 42,285 48,240 Gross Profit 46,570 38,582 48,328 54,555 Employee Cost 7,948 7,896 9,244 10,332 Other Expenses 23,424 15,597 21,634 24,113 EBITDA 15,198 15,089 17,450 20,110 Depr. & Amortization 1,338 1,429 1,605 1,793 Net Interest 480 540 195 165 Other Income 2,192 2,984 3,122 3,739 Profit before Tax 15,572 16,104 18,773 21,891 Total Tax 3,018 3,303 3,848 4,761 Profit after Tax 12,555 12,801 14,924 17,129 Ex Od items / Min. Int. 27 (2,974) 33 36 Adj. PAT 12,527 12,769 14,891 17,093 Avg. Shares O/S (m) 1,759.1 1,761.5 1,769.1 1,774.1 EPS (Rs.) 7.1 7.2 8.4 9.6 Cash Flow Abstract(Rs m) C/F from Operations 11,085 14,425 15,785 17,195 C/F from Investing (8,190) (6,369) (7,773) (9,803) C/F from Financing (1,094) (5,825) (4,012) (5,313) Inc. / Dec. in Cash 1,801 2,231 4,000 2,078 Opening Cash 678 1,374 1,743 2,774 Closing Cash 2,479 3,606 5,743 4,853 FCFF 9,843 16,571 12,328 16,568 FCFE 10,419 17,774 6,213 16,068 Key Financial Metrics Growth Revenue (%) 8.0 (8.9) 17.7 13.4 EBITDA (%) 15.4 (0.7) 15.6 15.2 PAT (%) 17.5 1.9 16.6 14.8 EPS (%) 17.4 1.8 16.1 14.5 Profitability EBITDA Margin (%) 18.0 19.6 19.3 19.6 PAT Margin (%) 14.8 16.6 16.4 16.6 RoCE (%) 32.2 31.7 31.1 30.9 RoE (%) 30.7 28.1 26.0 25.6 Balance Sheet Net Debt : Equity 0.2 0.2 Net Wrkng Cap. (days) 12 12 17 18 Valuation PER (x) 46.8 46.0 39.6 34.6 P / B (x) 14.1 12.1 10.2 8.9 EV / EBITDA (x) 39.0 39.4 33.8 29.4 EV / Sales (x) 7.0 7.7 6.5 5.7 Earnings Quality Eff. Tax Rate 19.4 20.5 20.5 21.8 Other Inc / PBT 14.1 18.5 16.6 17.1 Eff. Depr. Rate (%) 4.8 5.7 5.0 5.3 FCFE / PAT 83.2 139.2 41.7 94.0. Balance Sheet Abstract(Rs m) Shareholder's Funds 41,601 48,474 57,988 66,580 Total Debt 7,912 9,115 3,000 2,500 Other Liabilities 982 1,328 1,206 1,335 Total Liabilities 50,495 58,917 62,195 70,416 Net Fixed Assets 19,947 15,900 20,880 21,087 Goodwill 4,105 Investments 26,068 34,157 36,258 44,061 Net Current Assets 4,480 4,755 3,675 3,886 Cash & Equivalents 1,374 1,416 2,774 2,667 Other Current Assets 23,816 21,732 24,114 27,363 Current Liabilities 20,710 18,393 23,213 26,143 Other Assets Total Assets 50,495 58,917 60,813 69,034 Quarterly Financials(Rs m) Y/e March Q3FY17 Q4FY17 Q1FY18 Q2FY18 Net Revenue 18,529 19,147 17,901 19,589 EBITDA 3,339 4,176 3,089 4,199 % of revenue 18.0 21.8 17.3 21.4 Depr. & Amortization 333 395 391 401 Net Interest 139 117 133 133 Other Income 831 650 813 843 Profit before Tax 3,697 4,314 3,378 4,508 Total Tax 753 977 589 880 Profit after Tax 1,610 3,076 2,671 3,591 Adj. PAT 2,938 3,331 2,794 3,627 Key Operating Metrics Standalone Sales growth % (1.7) 0.7 11.3 12.9 EBITDA growth % 17.0 8.7 10.4 13.1 Adj. PAT 9,373 10,708 11,799 13,315 Adj. PAT growth % 19.2 14.3 10.2 12.9 EPS 5.3 6.1 6.7 7.5 Subsidaries Sales growth % 29.5 (10.7) 11.2 14.5 EBITDA growth % 1.6 0.3 21.3 21.8 Adj. PAT 2,626 2,444 3,034 3,760 Adj. PAT growth % (0.7) (6.9) 24.2 23.9 EPS 1.5 1.4 1.7 2.1. October 31, 2017 4
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