INSTITUTIONAL EQUITY RESEARCH Dabur India Ltd (DABUR IN ...backoffice.phillipcapital.in/.../PC_-_Dabur_Q1FY20... · Dabur results were significantly ahead of consensus estimates,

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

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Dabur India Ltd (DABUR IN)

Defying all the odds

INDIA | FMCG | Quarterly Update

19 July 2019

Top takeaways from 1QFY20 Dabur results were significantly ahead of consensus estimates, as it was able to navigate

challenges of rural distress and liquidity related issues for trade channels, much better than its peers. Management highlighted its initiative of increased direct distribution reach, intensive focus on power brands (65-70% of revenue) and revamp of supply chain infrastructure led to such strong outperformance. Performance was broad-based across categories; however juices business continued to remain drag for fourth consecutive quarter. Recovery in International business (30% of sales) on back of strong growth in Turkey (41% CC), stabilization of Middle East business and increasing share of high margin Non-USA (c40% now) for Namaste basket further gave momentum.

Ebitda growth (18.5% yoy) was far ahead of our expectations due to improved product mix (higher salience of Healthcare products), better geographical mix within International business and benefits of operating leverage kicking in

Management sounded caution despite delivering c10% volume growth, as rural business (50% of sales) has started decelerating from June,2019 onwards owing to liquidity crunch, deficient rainfall and muted consumer sentiment. However, it reiterated its guidance of mid to high single digit volume growth and operating margin above 20% in FY20, which we believe is quite commendable in relative context given other CPG companies are struggling to achieve the same

Segment takeaways Corrective action in place to revive Juices business: Given increased competition from

milk based beverage manufacturers, Dabur has launched differentiated masala range (Mixed fruit and Aam Panna) and mixed berries variant. It plans to penetrate in rural areas using Rs 10 (Real Koolerz) range, as juice being more of urban oriented category.

Oral care continues to smile: Market share gains (40bps), increasing preference towards natural products (15% growth in Dabur Red) led to double digit volume growth. Babool, which was struggling on account of launches made by competitors in access packs, has been relaunched on ayurvedic platform at disruptive price point (30/100 gm)

Health supplements was an outlier - grew 20% on back of market share gains (c100bps) in glucose category. Glucose saw strong growth owing to trade related disruption for key competitor (Kraft Heinz sold to Zydus) and launch of Mango variant

Hair care – Double digit growth across VAHO portfolio; however coconut oil disappointed due to increased competitive intensity from Marico. Almond hair oil grew handsomely due to 50% additional offer in Modern Trade

New Power brands: Focus on Honitus (cough & cold) ; Pudin Hara (digestive) & Lal tail and will take other brand once each of the brand reach Rs 1 bn revenue potential

Diversified portfolio makes it immune from any unknown: We believe Dabur’s diversified portfolio makes it fool-proof from any economic, regulatory and seasonality risks that other peers might have to tackle. Management under the guidance of Mr Mohit Malhotra is taking steps in right direction (Focus on power brands, NPD and increased distribution reach) to drive growth in long term. Reduction in competitive intensity from Patanjali further should support the cause. We maintain BUY with TP with of Rs 485 (45x Sept -21) vs 430 (40x Dec-20 EPS). Key Risks to our call – 1) Discount-led competition by juice/ oral care players to gain market share and 2) any unfavorable factor could hurt growth of rural economy

BUY (Maintain) CMP RS 421 TARGET RS 485 (15%) COMPANY DATA

O/S SHARES (MN) : 1767

MARKET CAP (RSBN) : 744

MARKET CAP (USDBN) : 10.8

52 - WK HI/LO (RS) : 491/ 358

LIQUIDITY 3M (USDMN) : 14.9

PAR VALUE (RS) : 1

SHARE HOLDING PATTERN, %

Jun 19 Mar 19 Dec 18

PROMOTERS : 67.9 67.9 67.9

FII / NRI : 18.3 18.2 18.2

FI / MF : 6.6 6.9 6.8

NON PRO : 1.8 1.7 1.8

PUBLIC & OTHERS : 5.4 5.4 5.4

KEY FINANCIALS

Rs mn FY20E FY21E FY22E

Net Sales 93,070 1,03,001 1,14,002

EBIDTA 19,331 21,949 24,713

Net Profit 15,562 17,903 20,181

EPS, Rs 8.8 10.1 11.4

PER, x 47.2 41.5 36.8

EV/EBIDTA, x 38.1 33.1 29.0

PBV, X 11.8 10.2 8.8

ROE, % 24.9 24.6 23.9

Debt/Equity (%) 13.1 11.4 9.8

Vishal Gutka, Research Analyst Preeyam Tolia, Research Associate

(Rs mn) 1QFY20 1QFY19 Yoy %

4QFY19 qoq %

PC yoy %

Net Sales 22,733 20,807 9.3 21,282 6.8 6.2

EBITDA 4,576 3,861 18.5 4,572 0.1 5.4

PAT 3,831 3,292 16.4 4,458 (14.1) 2.6


DABUR INDIA LTD QUARTERLY UPDATE

Financial Snapshot

Consolidated (Rs m) 1QFY19 1QFY20 Yoy % Comments

Volume gr (%) 21.0 9.6

Net sales 20,807 22,733 9.3 Double digit growth across categories ; with food being only exception

Operating Costs (16,946) (18,157) 7.1

EBITDA 3,861 4,576 18.5 Improved product mix, better geographical mix and operating leverage led it

EBITDA Margin (%) 18.6 20.1 157bps

Depreciation (427) (528) 23.4

Interest (149) (153) 2.5

Other Income 737 733 -0.5

PBT 4,022 4,629 15.1

Provision for Tax (724) (794) 9.7

-Tax Rate (%) 18.0 17.2 -84bps

Net profit before minority 3,298 3,835 16.3

Minority Interest (8) (7)

Share of profit from associate 2 3

Adj PAT 3,292 3,831 16.4

Net Profit Margin 15.8 16.9 103bps

EO Items - (200)

Reported PAT 3,292 3,631 10.3

EPS 1.9 2.1 10.3

Gross Profit 10,321 11,256 9.1 Benign input led to flatter gross margins

Gross margins (%) 49.6 49.5 -9bps

Cost Details 1QFY19 1QFY20 Yoy %

Raw Material Consumption 10,486 11,477 9.5

As a % of sales 50.4 50.5 9bps

Employees cost 2,241 2,314 3.2

As a % of sales 10.8 10.2 -59bps

Ad spends 1,990 2,021 1.6 Spends on Power brands increased 15% YoY


Other expenditure 2,229 2,344 5.2


Source: Company PhillipCapital India Research



Volume growth 9.6% on strong performance across categories, except Foods

Source: Company

Category growth

Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 3QFY19 4QFY19 1QFY20

Growth rates

Markets

Domestic 2.4 (6.8) 0.7 (5.5) 10.7 17.7 10.0 24.7 8.6 15.2 5.9 11

International (reported currency) (2.3) 6.0 - - - - - - 3.4 1.9

International (constant currency) - - (4.5) (2.2) 3.9 5.0 16.8 10.5 7.0 1

7.7

Categories

Health Supplements - (14.0) 5.0 (7.0) 3.0 19.5 14.0 27.5 12.3 13.8 10.2 19.6

Digestives - (10.0) (5.0) 4.0 11.7 19.3 7.2 21.6 10.8 22.5 11.9 18.2

OTC & Ethicals 11.3 (11.0) (4.0) 6.6 5.5 8.7 7.8 13.3 7.7 17.7 12.1 15.2

Hair Care (6.0) (20.0) (4.0) (11.0) 2.3 24.0 13.0 20.0 15.4 24 2.8 11.7

Home Care 20.0 (5.0) 6.5 6.2 10.1 36.0 - 17.4 10.9 8.9 16.2 10.9

Oral Care - (5.0) 9.0 1.5 22.8 23.0 11.0 17.3 3.9 10 8.2 11.4

Skin Care 7.0 (11.0) - 4.0 15.8 14.5 8.5 27.1 11.9 19.3 11.2 12.1

Foods 15.2 52.0 10.0 - 11.7 - 2.0 26.0 1.4 11.5 6.5 0.5

Source: Company PhillipCapital India Research

4 5

-5

2

-4

7

13

8

21

8.1

12.4

4.3

9.6

-10

-5

0

5

10

15

20

25

Domestic volume gr (%)



Conference Call takeaways

Rural growth (up 13% yoy) continues to grow faster than urban growth, however its growth is tapering down as liquidity issues have started to surface. Despite weak rural growth outlook, management has highlighted that strategy for to drive penetration (through LUP) remains intact.

Wholesale channel (c.27%) is shrinking overall, particularly in urban and North Indian wholesale. However, trade wholesale is suffering and consumer wholesale has recovered and is growing at high single digit (8% now).

In order to reduce the dependence on wholesale channel, Dabur has stepped up its direct reach in Q1. Its direct reach stood at 1.14 million outlets (up 40,000 YoY) and plans to expand to 1.2 million outlets in FY20.

Further to strengthen its rural reach it added 4,000 villages in Q1 to 48,000 villages and plans to reach 55,000 villages in FY20.

North & west India are most impacted due to liquidity related challenges

RM basket is expected to remain benign in FY20.

Capex for FY20 stands at Rs 2.5-3.0 bn

Distributor consolidation – it plans to consolidate distributors in urban areas, as some of them face viability issue due to increased operating costs.

Domestic Business

Health care

Health Supplements grew segment by 19.6% yoy led by double digit growth in Glucose and on back of market share gains from Kraft Heinz.

Digestives grew 18% on back of strong performance of Hajmola tablets and Pudin Hara. Hajmola Chat Cola is gaining traction sequentially.

In Honey it has reduced promotions of extra 30% grammage to 20% and has also taken price hikes. Also in Ethicals, it has taken 6-7% price hikes in Q1.

Home and Personal care

Oral care grew by 11.4% yoy driven by market share gains (up 40 bps to 15.3%) and strong growth in Red Toothpaste (up 15% yoy).

It expects re-launch of Babool at Rs 30 in Q1 will helped regained the oral care growth. To further strengthen the Babool portfolio it plans to launch differentiated communication strategy based on Ayurveda proposition. Babool has been promoted as price warrior in order to compete with brands on the economy side

After successful re-launch Babool it will revive Meswak and plans to relaunch by end of H1FY20. It has also re-organized its team for the same

Current Oral care market stands at Rs 80bn growing at 5-6% annually, while naturals growing at CAGR 18% and contributes 25-30% of the overall Oral care market.

South India has been the stronghold for Dabur Red ; but recently it has intensified its efforts to garner market share in North India

Foods

Beverages growth tapered down to 1% yoy primarily on account of increased competition from prolonged winter, dairy companies and carbohydrate drink players (growing 10% yoy) as customers customer shift to more affordable option.

In order to stop down trading and protect market share (currently 56%), it launched Rs 10 SKU Real Koolerz Mango to drive affordability and rural penetration.



Food safety & standards (Labelling & Display) regulations, 2019 –70-75% of the foods and packaging industry will come under new law if it is implemented, in true order

Ethicals business

2100 personnel were added in Ethicals team. Doctor’s reach has increased from 27,000 to 40,000

Classical Ethicals (50% of portfolio) has been growing @ 10% on back of Medical Representative addition

Branded Ethicals (25% of portfolio) has seen growth of 35-40%.

Tonics growing @20-25% International business

International business seeing signs of stabilization in Q1. MENA (c.50%) was flat after negative growth in the past few years driven by trade schemes and consumer sentiments picking up.

To further strengthen the international business, management is focusing on stabilizing the business through consolidation and growing existing categories and does not plan to enter any new category in FY20.

Expects international margins to remain stable in FY20 & incremental gains will be invested behind new launches

Two-year forward P/E band EV/EBITDA band

Source: PhillipCapital India Research Estimates

12x

24x

36x

48x

0

100

200

300

400

500

600 Rs

9x

18x

27x

36x

0

200000

400000

600000

800000

1000000 Rs mn



Financials

Income Statement Y/E Mar, Rs mn FY19E FY20E FY21E FY22E

Net sales 85,331 93,070 1,03,001 1,14,002

Growth, % 10.1 9.1 10.7 10.7

Other income 0 0 0 0

Total income -43,090 -46,538 -50,959 -56,054

Raw material expenses -9,379 -10,129 -11,142 -12,257

Other Operating expenses -15,466 -17,073 -18,951 -20,978

EBITDA (Core) 17,396 19,331 21,949 24,713

Growth, % 7.6 11.1 13.5 12.6

Margin, % 20.4 20.8 21.3 21.7

Depreciation -1,769 -2,266 -2,473 -2,679

EBIT 15,627 17,064 19,476 22,034

Growth, % 7.4 9.2 14.1 13.1

Margin, % 18.3 18.3 18.9 19.3

Interest paid -596 -620 -682 -750

Other income 2,962 3,258 3,584 3,942

Other Non-Operating Income -753 -200 0 0

Pre-tax profit 17,249 19,503 22,378 25,226

Tax provided -2,786 -3,941 -4,476 -5,045

Profit after tax 14,463 15,562 17,903 20,181

Net Profit 14,463 15,562 17,903 20,181

Growth, % 10.9 3.6 13.6 12.7

Net Profit (adjusted) 14,463 15,562 17,903 20,181

Unadj. shares (m) 1,766 1,766 1,766 1,766

Wtd avg shares (m) 1,766 1,766 1,766 1,766

Balance Sheet Y/E Mar, Rs mn FY19E FY20E FY21E FY22E

Cash & bank 1,526 8,923 17,477 28,450

Marketable securities at cost 7,134 7,134 7,134 7,134

Debtors 7,776 8,481 9,386 10,389

Inventory 12,858 14,024 15,521 17,178

Loans & advances 349 349 349 349

Total current assets 33,875 43,143 54,098 67,732

Investments 30,918 30,918 30,918 30,918

Gross fixed assets 32,958 35,708 38,458 41,208

Less: Depreciation -11,946 -14,212 -16,684 -19,363

Add: Capital WIP 415 415 415 415

Net fixed assets 21,427 21,911 22,188 22,260

Total assets 87,224 96,977 1,08,209 1,21,914

Current liabilities 25,773 27,181 28,989 30,991

Provision 565 565 565 565

Total current liabilities 26,338 27,746 29,554 31,556

Non-current liabilities 4,776 4,776 4,776 4,776

Total liabilities 31,114 32,523 34,330 36,333

Paid-up capital 1,762 1,762 1,762 1,762

Reserves & surplus 53,340 61,483 70,908 82,611

Shareholders’ equity 55,366 63,510 72,934 84,637

Total equity & liabilities 86,481 96,033 1,07,265 1,20,970

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY19E FY20E FY21E FY22E

Pre-tax profit 17,249 19,503 22,378 25,226 Depreciation 1,769 2,266 2,473 2,679 Chg in working capital 417 -463 -594 -658 Total tax paid -2,786 -3,941 -4,476 -5,045 Other operating activities 0 0 0 0 Cash flow from operating activities 16,648 17,366 19,781 22,202 Capital expenditure -2,500 -2,750 -2,750 -2,750 Chg in investments 0 0 0 0 Chg in marketable securities 0 0 0 0 Other investing activities 0 0 0 0 Cash flow from investing activities -2,490 -2,750 -2,750 -2,750 Free cash flow 14,158 14,616 17,031 19,452 Equity raised/(repaid) 0 0 0 0 Debt raised/(repaid) 0 0 0 0 Dividend (incl. tax) -5,829 -7,418 -8,478 -8,478 Other financing activities 0 0 0 0 Cash flow from financing activities -5,829 -7,418 -8,478 -8,478 Net chg in cash 8,329 7,197 8,553 10,974

Valuation Ratios

FY19E FY20E FY21E FY22E

Per Share data EPS (INR) 8.2 8.8 10.1 11.4

Growth, % 10.9 3.6 13.6 12.7 Book NAV/share (INR) 31.2 35.8 41.1 47.8 FDEPS (INR) 8.6 8.9 10.1 11.4 CEPS (INR) 10.0 10.3 11.5 12.9 CFPS (INR) 7.7 8.0 9.2 10.3 DPS (INR) 2.8 3.5 4.0 4.0 Return ratios

Return on assets (%) 17.3 17.6 18.1 18.2 Return on equity (%) 27.6 24.9 24.6 23.9 Return on capital employed (%) 24.4 25.0 25.3 24.9 Turnover ratios

Asset turnover (x) 3.4 3.6 3.8 4.1 Sales/Total assets (x) 1.0 1.0 1.0 1.0 Sales/Net FA (x) 4.1 4.3 4.7 5.1 Working capital/Sales (x) (0.0) (0.0) 0.0 0.0 Fixed capital/Sales (x) - - - - Working capital days (2.4) (0.4) 1.8 3.7 Liquidity ratios Current ratio (x) 1.3 1.6 1.9 2.2 Quick ratio (x) 0.8 1.1 1.3 1.6 Interest cover (x) 26.2 27.5 28.6 29.4 Dividend cover (x) Total debt/Equity (%) 15.0 13.1 11.4 9.8 Net debt/Equity (%) 12.3 (1.0) (12.6) (23.9) Valuation PER (x) 48.9 47.2 41.5 36.8 Price/Book (x) 13.5 11.8 10.2 8.8 Yield (%) EV/Net sales (x) 8.7 7.9 7.1 6.3 EV/EBITDA (x) 42.7 38.1 33.1 29.0 EV/EBIT (x) 47.6 43.1 37.3 32.5



Stock Price, Price Target and Rating History

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

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N (TP 315) N (TP 315)

N (TP 300) N (TP 300)

N (TP 330)

N (TP 345) N (TP 375) M-18

B (TP 490)

B (TP 430)

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J-16 A-16 O-16 N-16 J-17 F-17 A-17 M-17 J-17 A-17 O-17 N-17 J-18 F-18 A-18 M-18 J-18 A-18 O-18 N-18 J-19 F-19 A-19 M-19



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INSTITUTIONAL EQUITY RESEARCH Dabur India Ltd (DABUR IN ...backoffice.phillipcapital.in/.../PC_-_Dabur_Q1FY20... · Dabur results were significantly ahead of consensus estimates,

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