RESULTS REVIEW 4QFY19 03 MAY 2019 Dabur India BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Await rural acceleration Dabur reported a weak show in 4QFY19, as the performance was marred by seasonality impact and slowdown in rural offtake (unlike previous elections). We cut our EPS by 4% for FY20-21E owing to a delay in rural acceleration and weakness in international biz. We believe the govt. will focus on reviving rural consumption, making Dabur the best play (particularly after the recent stock correction). Our TP is at Rs 464 based on 38x FY21E EPS. HIGHLIGHTS OF THE QUARTER Domestic revenue/volume grew at 6/4% (13/11% in FY19) vs. our exp of 9.5/6%. Adjusting for 6% de- growth in beverage portfolio, domestic revenue grew by 8.5%. Dabur gained market share in all its categories except for Home care and Skin care (12% combined revenue mix), reflecting continued weakness in competitive intensity (mainly from Patanjali). Mohit Malhotra’s (new CEO) focus is on consolidating A&P investments i.e. disproportionate investments on power brands (like Dabur Amla, Dabur Red, Real etc.) instead on marginal brands. The mgt. believes that these power brands (strong brand equity) have a large addressable market and hence there is an opportunity to gain scale with increased support from investments. International business (27% revenue mix) grew by 2% owing to continued slowdown in MENA region and currency devaluation. EBITDAM declined by 238bps to 21.5% driven by 95bps decline in gross margins (limited price hikes) and 34/10% growth in employee/other expenses. APAT declined by 6% to Rs 3,717mn vs. exp of Rs 4,266mn. STANCE Dabur is enjoying a renewed consumer fad in ‘naturals’ across its portfolio with limited competitive intensity. Dabur’s success in FY20-21E will depend on how the co. capitalizes on this opportunity based on (a) Success of new launches, (b) Scaling power brands, (c) Marketing strategy (d) Deeper distribution (rural markets) and (e) Recovery in rural demand. Post the recent correction in the stock, we believe the ask rate is not demanding. New CEO on board would lead to a rejig in the co’s strategy and may result in short term pain for long term gain. We advise investors to look at the stock from a medium-long term perspective. Financial Summary YE March (Rs mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%) FY17 FY18 FY19 FY20E FY21E Net Revenues 21,282 20,329 4.7 21,992 (3.2) 76,136 77,219 85,331 96,279 108,608 EBITDA 4,572 4,852 (5.8) 4,454 2.7 15,089 16,174 17,396 20,994 24,678 APAT 3,717 3,962 (6.2) 3,661 1.6 12,769 13,663 14,436 18,032 21,501 Diluted EPS (Rs) 2.11 2.25 (6.2) 2.07 1.8 7.25 7.76 8.20 10.24 12.21 P/E (x) 52.4 49.0 46.4 37.1 31.1 EV / EBITDA (x) 43.2 39.9 37.0 30.4 25.6 Core RoCE (%) 47.1 46.9 47.5 55.4 61.6 Source: Company, HDFC sec Inst Research INDUSTRY FMCG CMP (as on 02 May 2019) Rs 382 Target Price Rs 464 Nifty 11,725 Sensex 38,981 KEY STOCK DATA Bloomberg DABUR IN No. of Shares (mn) 1,766 MCap (Rs bn) / ($ mn) 675/9,723 6m avg traded value (Rs mn) 1,176 STOCK PERFORMANCE (%) 52 Week high / low Rs 491/359 3M 6M 12M Absolute (%) (15.4) 3.4 4.1 Relative (%) (22.3) (9.8) (6.7) SHAREHOLDING PATTERN (%) Dec-18 Mar-18 Promoters 67.89 67.90 FIs & Local MFs 6.94 6.67 FPIs 18.16 18.21 Public & Others 7.01 7.22 Pledged Shares 0.00 0.00 Source : BSE Naveen Trivedi [email protected]+91-22-6171-7324 Siddhant Chhabria [email protected]+91-22-6171-7336
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RESULTS REVIEW 4QFY19 03 MAY 2019
Dabur India BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Await rural acceleration Dabur reported a weak show in 4QFY19, as the performance was marred by seasonality impact and slowdown in rural offtake (unlike previous elections). We cut our EPS by 4% for FY20-21E owing to a delay in rural acceleration and weakness in international biz. We believe the govt. will focus on reviving rural consumption, making Dabur the best play (particularly after the recent stock correction). Our TP is at Rs 464 based on 38x FY21E EPS.
HIGHLIGHTS OF THE QUARTER Domestic revenue/volume grew at 6/4% (13/11% in
FY19) vs. our exp of 9.5/6%. Adjusting for 6% de-growth in beverage portfolio, domestic revenue grew by 8.5%. Dabur gained market share in all its categories except for Home care and Skin care (12% combined revenue mix), reflecting continued weakness in competitive intensity (mainly from Patanjali).
Mohit Malhotra’s (new CEO) focus is on consolidating A&P investments i.e. disproportionate investments on power brands (like Dabur Amla, Dabur Red, Real etc.) instead on marginal brands. The mgt. believes that these power brands (strong brand equity) have a large
addressable market and hence there is an opportunity to gain scale with increased support from investments.
International business (27% revenue mix) grew by 2% owing to continued slowdown in MENA region and currency devaluation.
EBITDAM declined by 238bps to 21.5% driven by 95bps decline in gross margins (limited price hikes) and 34/10% growth in employee/other expenses. APAT declined by 6% to Rs 3,717mn vs. exp of Rs 4,266mn.
STANCE Dabur is enjoying a renewed consumer fad in ‘naturals’ across its portfolio with limited competitive intensity. Dabur’s success in FY20-21E will depend on how the co. capitalizes on this opportunity based on (a) Success of new launches, (b) Scaling power brands, (c) Marketing strategy (d) Deeper distribution (rural markets) and (e) Recovery in rural demand. Post the recent correction in the stock, we believe the ask rate is not demanding. New CEO on board would lead to a rejig in the co’s strategy and may result in short term pain for long term gain. We advise investors to look at the stock from a medium-long term perspective.
Domestic business grew by 6% (exp. of 9%) driven by 4% volume growth International biz remained muted and posted 2% growth Consolidated GM declined by 94bps owing to volatile commodity inflation, higher promotional spend and forex impact Control on ASP (down 22%) has been offset by higher employee/other expenses (34/10%). EBITDA declined by 6% APAT is adjusted for tax rate and impact of impairment of goodwill of Hobi owing to currency devaluation
DABUR INDIA: RESULTS REVIEW 4QFY19
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Quarterly Segmental Year to March (Rsmn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%) FY19 FY18 YoY (%) Consumer Care Business 17,886 16,774 6.6 19,116 (6.4) 71,329 64,141 11.2 Foods 2,791 2,934 (4.9) 2,266 23.2 11,586 10,977 5.5 Retails 315 279 12.8 342 (8.1) 1,244 1,143 8.8 Others 214 248 (13.7) 214 0.0 893 970 (8.0) Unallocated other operating revenue 77 94 (18.0) 54 42.3 279 252 10.8 Total 21,282 20,329 4.7 21,992 (3.2) 85,331 77,483 10.1 Segmental EBIT Consumer Care Business 4,520 4,287 5.4 4,647 (2.7) 17,482 15,961 9.5 Foods 454 554 (18.0) 296 53.1 1,755 1,581 11.0 Retails 9 4 na 13 (30.8) 41 31 na Others 14 17 (21.1) 17 (21.5) 73 28 159.8 Total 4,997 4,862 2.8 4,973 0.5 19,351 17,602 9.9 Less: (a) Interest Cost & Bank Charges 124 132 (6.3) 167 (25.9) 596 531 12.3 (b) Other Un-allocable Expenses 226 (296) (176.4) 216 5.0 763 (2) na PBT 4,647 5,026 (7.5) 4,591 1.2 17,993 17,074 5.4 Capital Employed Consumer Care Business 22,410 22,444 (0.2) 23,190 (3.4) 22,410 22,444 (0.2) Foods 3,932 3,344 17.6 3,488 12.7 3,932 3,344 17.6 Retails 312 288 8.5 308 1.3 312 288 8.5 Others 333 216 53.8 342 (2.7) 333 216 53.8 Total 26,987 26,292 2.6 27,327 (1.2) 26,987 26,292 2.6 Unallocable Capital Employed 29,644 31,038 (4.5) 25,399 16.7 29,644 31,038 (4.5) Total Capital Employed 56,631 57,331 (1.2) 52,727 7.4 56,631 57,331 (1.2) Consumer Care Business 17,886 16,774 6.6 19,116 (6.4) 71,329 64,141 11.2 Source: Company, HDFC sec Inst Research EBIT Margin Year to March (Rsmn) 4QFY19 4QFY18 YoY (bps) 3QFY19 QoQ (bps) FY19 FY18 YoY (bps) Consumer Care Business 25.3 25.6 (28) 24.3 97 24.5 24.9 (38) Foods 16.3 18.9 (261) 13.1 318 15.1 14.4 74 Retails 2.9 1.5 142 3.9 (96) 3.3 2.7 56 Others 6.3 6.9 (58) 8.0 (173) 8.2 2.9 528 Total 23.5 23.9 (44) 22.6 86 22.7 22.7 (4) Source: Company, HDFC sec Inst Research
Dabur’s growth was impacted owing to muted growth in international business Food business impacted by extended winter
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Dabur’s oral portfolio continues to gain scale despite underperformance from Babool (expected to clock Rs >10bn in FY19 vs. ~Rs 8bn in FY17) Dabur Honey has grown by 33/24/42/13/20% YoY during 3QFY18/4QFY18/1QFY19/2QFY19/3QFY19 which signals declining competitive intensity from Patanjali
Dabur has witnessed a broad-based acceleration during 9MFY19 Continued market share gains 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
DABUR INDIA: RESULTS REVIEW 4QFY19
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Assumptions Particulars FY17 FY18 FY19E FY20E FY21E Domestic Gr. (%) 1.0 5.2 12.4 13.3 12.8 Hair Care Gr. (%) (6.8) 4.2 15.7 12.0 11.0 Oral Care Gr. (%) 7.5 16.9 3.8 12.5 12.0 Health Supplements Gr. (%) (2.7) 10.3 21.6 14.6 14.0 OTC & Ethicals Gr. (%) (9.6) 5.2 19.5 13.6 14.0 Digestive Gr. (%) (11.4) 10.4 19.8 11.5 12.0 Home Care Gr. (%) 4.6 14.2 10.4 12.7 14.0 Skin Care Gr. (%) 5.3 11.1 12.7 12.8 14.0 Foods Gr. (%) 12.2 1.5 0.4 15.2 13.5 International Gr. (%) (5.0) (6.3) 5.1 11.3 12.5 Consolidated Revenue Gr. (%) (3.0) 1.4 10.5 12.8 12.8 Gross Margin (%) 50.7 50.5 49.5 50.3 50.7 ASP (% of sales) 8.5 7.9 7.1 7.1 7.0 Distribution (% of sales) 2.7 2.5 2.6 2.6 2.6 Employee (% of sales) 10.4 10.3 11.0 10.8 10.6 Other Expenses (% of sales) 9.3 9.0 8.4 8.0 7.7 EBITDA Margin (%) 19.8 20.9 20.4 21.8 22.7 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 85,331 85,985 -0.8% 96,279 97,617 -1.4% 108,608 110,246 -1.5% EBITDA 17,396 18,052 -3.6% 20,994 21,850 -3.9% 24,678 25,586 -3.5% APAT 14,436 14,978 -3.6% 18,032 18,889 -4.5% 21,501 22,485 -4.4% EPS 8.2 8.5 -3.6% 10.2 10.7 -4.5% 12.2 12.8 -4.3% Source: HDFC sec Inst Research
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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