Dabur India Q2FY18: Set to take competition head on; Buy for medium to long term investment

Suhani Adilabadkar | Jan. 12, 2018, 5:29 p.m.

DABUR India Ltd reported spectacular sequential growth for the September quarter FY18 but with mild yearly numbers. Revenue or Income From Operations fell 1% YOY at Rs. 19589 Mn in September quarter against Rs. 19816 Mn same period previous year. Sequential growth was reported at 9% in September quarter driven by 10% domestic & volume growth of 7.2% with international business growing at 3.9% in constant currency. Domestic & international business contributed 68% & 29% respectively in September quarter FY18. EBDITA grew 1% and stood at Rs. 5042 Mn against Rs. 4979 Mn corresponding quarter previous year. On quarterly basis EBDITA growth was 29% in Q2 FY18. Profit After Tax grew 37% QOQ at Rs. 3627 Mn against Rs. 3584 Mn corresponding quarter previous year with yearly growth of just 1%. Operating Expenditure declined 2% YOY from Rs. 15730 Mn in Q2 FY17 to Rs. 15390 Mn in September quarter FY18. Other expenditure fell from 12.1% of sales to 10.8% of sales on the back of cost synergies and declined 12% YOY supporting expenditure de-growth. On quarterly basis, operating expenditure jumped 4% QOQ in Q2 FY18. EBDITA margin expanded 394 basis points QOQ and 61 basis points yearly at 25.74% in the current quarter. Net Profit Margin too followed suit, rising 372 basis points sequentially and 43 basis points YOY. Net Profit Margin was reported at 18.51% against 18.08% same period previous quarter. Taxation was almost constant at Rs. 880 Mn where as finance costs declined 20% and were reported at Rs. 133 Mn YOY buttressing the bottom-line. Depreciation on the other hand jumped 12% at Rs. 401 Mn in September quarter. Other Income fell 6% YOY and rose 4% on quarterly basis.

Other Income was reported at Rs. 843 Mn compared to Rs.893 Mn corresponding quarter previous year. Dabur India Ltd is one of the most trusted Indian brand and world’s largest Ayurvedic and Natural Health Care Company. Dabur operates in key consumer product categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. The company has wide distribution network of about 6 million retail outlets in both urban and rural markets. The company’s revenue basket is broadly divided into consumer care, food & retail business. Consumer care business contributing 83% of total revenues de-grew 2% YOY with positive sequential growth of 13% in the September quarter. Food business contributes the next biggest chunk of about 14% exhibiting 5% YOY growth. Retail business reported negative growth both yearly & sequentially. Consumer Care, Food & Retail revenues were reported at Rs 16147 Mn, Rs. 2828 Mn & Rs. 265 Mn respectively in September FY18. DABUR Ltd has weathered GST disruption and is expected to perform better with an uptick in the domestic rural economy and global growth. The company has collaborated with Amazon to increase its online and overseas presence and aims to double its ecom volumes which are currently about 1.5% of domestic sales. The company has improved its bottom-line in September quarter with strong volume growth of 7% without any beneficial restocking impact. With respect to product category, Real juices witnessed margin improvement with market share of 55% in Q2 FY18, Dabur Honey grew by 8.6% reversing the declining trend of previous quarters and oral care growth was around 23%.

Dabur seems to have stabilized its business model and is expected to take competition head on in the coming quarters. We recommend BUY for the stock for medium & long term investment with target price of Rs. 550 and PE multiple of 45.62 x FY18E & 42.96 x FY19E.

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