Clearing The Real Hurdles
Diverse range of products, new launches and growth momentum in key categories make Dabur India a sound buy
Dabur India, with popular brands such as Vatika, Real, Hajmola and Dabur Chyawanprash, is a prominent player in the fast moving consumer goods (FMCG) space. The company has a well-diversified portfolio of over 350 products spread over segments such as consumer products, health products and foods. With very little presence in the luxury or premium segments (which are the first to bear the brunt of any slowdown in consumer spending), Dabur is fairly insulated from slowdown pressures. Further to this, new launches and brand extensions, growth in key categories such as hair oils, shampoos and baby and skin care and strong growth in the international market make Dabur a good, long-term investment.
Business performance. During the September 2008 quarter, Dabur’s consumer care division (CCD), which forms almost 77 per cent of the revenues, grew by 18.86 per cent. Its renewed focus on ayurvedic over-the-counter (OTC) products saw consumer healthcare division grow by over 21 per cent in the same quarter.
Within CCD, hair oils grew by 20 per cent in the quarter while baby and skin care business saw 18 per cent growth. Shampoos grew by over 36 per cent in the quarter. A recent report by AC Nielsen ORG Marg says Vatika shampoo’s sales (volumes) grew by 38 per cent during the April-September 2008 period compared to the industry average of 10 per cent. In terms of value, it grew by 33 per cent while the industry average was 15 per cent.
Financial performance. Dabur registered a compounded annual growth rate (CAGR) of 14 per cent in revenues and 25 per cent in net profit, over the last five years. Sustained growth rate in its key categories has helped it register 18.32 per cent growth in sales in the September 2008 quarter as against the previous year’s quarter. Its international business (19 per cent of the total revenue) saw a good growth of 40.5 per cent led by robust performance in GCC (Gulf Cooperation Council), Egypt, Nigeria, Yemen and North African markets.
Its operating margin, however, slipped by 179 basis points on higher commodity prices, advertising cost and loss (Rs 5 crore) from its retail venture. But, cost management measures and pricing strategy helped net profit grow by 12 per cent for the September 2008 quarter. The health and beauty retail venture (which the company entered last fiscal) has also slowed down the pace of growth in earnings. This could continue to drag the profitability for a few more quarters as this business has long gestation period.
Growth plans. Dabur plans to strengthen its presence in the shampoo (revamped Vatika packaging and introduced Vatika black shine shampoo) and skin care categories. It is also strengthening its OTC portfolio (plans to launch ayurvedic skincare range) and is expanding its homecare portfolio (launched hard surface cleaner Dazzl). It is planning to launch fruit juices at different price points and is making packaging changes to the entire chyawanprash range. The new launches will be growth drivers over the next few years. The ayurvedic and herbal association is a plus.
Valuation. Going forward, if the current softening seen in the commodity prices continues, then the pressure on operating margins will ease. The price hikes seen during the previous quarter is also likely to improve the margins. At the current market price, the stock is trading 20.91 times its earnings, low when compared to players like Hindustan Unilever (25.9 times) and Nestle (27 times). Invest for steady returns and low downside risk.
Also visit my other blogs namely
http://goodfundadvisor.blogspot.com/
http://goodtravelplanner.blogspot.com/
http://indiahotelstariff.blogspot.com/
Posts
AYODYA
-
Visit
http://goodtraveladvisor.blogspot.com THE BLOG/BLOGGER IS NOT RESPONSIBLE
FOR ANY LOSS RESULTING ON ACTION TAKEN ON THE BASIS OF THE
INFO/RECOMMENDA...
Dabur India’s vast health-based product range and focus on overseas markets will help sustain growth rates.
ReplyDeleteDabur India is an investment opportunity in these uncertain times with a consistent historical performance to boast off and, notably an ability to deliver steady returns in the coming years. Its consolidated sales and net profits have grown at 18 per cent and 33 per cent, respectively in the last five years.
Dabur’s transformation from an ayurvedic products company to a growing modern FMCG player with diverse product range will hold it in good stead. Presence in health- and personal-care segments, focus on home-care along with scaling up of food products range, in cognizance of recent developments in the health supplement and skin-care side, would facilitate stable earnings growth in the future.
Consumer care
The consumer care division (CCD) accounts for the lion’s share of the company’s revenues, at over 70 per cent. Regular brand extensions, renovations and re-launches have helped sustain growth rates in CCD business. CCD has a diversified product reach with interests in health supplements (Chyawanprash, Dabur honey), oral-care (Babool, Meswak and Dabur Red), digestives (Hajmola), hair care (Vatika, Anmol) and home-care (Odomos).
Although, CCD accounts for a large chunk of revenues, its sales growth rate at around 13 per cent in the recent quarter Q2FY09 is lower as compared to the average of 16.4 per cent delivered in the last five years. This is however, a blip in the near-term as the company has chalked plans to revitalise this division with renewed focus on home care, health supplements, foods and skin-care segments, which will provide the next leg of growth.
The company has undertaken expansion plans in its Gulabari rose water-based skin-care range through several launches like face fresheners, face sprays, cold creams and moisturising lotion. A launch of a new ayurvedic skin-care range is also on the anvil.
In health supplements, apart from the dominance of Chyawanprash (more than 60 per cent market share), ChyawanJunior pan-India launch in the milk beverage segment later, hopes to drive the growth for this segment. Recent addition of Mahinder Singh Dhoni to endorse Chyawanprash will provide greater visibility for the future.
The company entered into the home-care category after the acquisition of Balsara and currently occupies a dominant position in both mosquito repellent creams (Odomos) and air freshener (Odonil; in solid and liquid form) space. The recent launch of Dazzl in the surface cleaning category along with two new variants of Odomos should help re-energise sales in this segment.
In the juices business, Dabur’s brands (Real and Real Activ) occupy an estimated 50 per cent of the market. However, they grew by just 9 per cent (a drop of 600 basis points q-o-q) in Q2 FY09 due to the one month closure of its Nepal-based factory.
Plans to introduce new variety of fruit-based juices and also provide small-sized packs (at different price points) are expected to help boost volumes in the ‘natural’ juice business, which is based on the health platform. Its Hommade brand has enabled culinary (processed foods) range segment to grow at 25 per cent in this quarter.
To sum up, nearly all the segments that Dabur operates in, are huge in size, which suggest that there will be no dearth of growth opportunities for the company. Any acquisition-related moves will propel growth rates further.
Ayurvedic push
Consumer Health Division (contributes 7 per cent to total sales) deals with classical ayurvedic medicines (range of over 260 medicines) and has been able to deliver growth rates of above 20 per cent in the last three quarters. While new product launches like Dabur Active Blood Purifier, Bhringraj Ayurvedic Tail and Dabur Super Thanda Tail have been launched in the last two quarters, there have been several re-launches; 60 per cent of OTC portfolio re-launched during FY08.
IN THE PINK OF HEALTH
Rs in crore FY08 FY09E FY10E
Net sales 2,396.0 2,794.0 3,278.0
EBITDA 443.0 472.0 555.0
Net profit 333.0 387.0 456.0
EPS (Rs) 3.9 4.5 5.3
P/E (x) 21.8 18.9 16.0
E: Analyst estimates
The company has been able to build a sound distribution network, which along with aggressive brand campaigns, have enabled this segment to grow at a rapid pace. The division is planning to develop ayurvedic products for serious medical disorders like life style ailments besides, adding new variants of the successful Hajmola and Honitus, all of which will sustain growth rates in future.
Retail pains?
The company’s foray into retail segment (retail store offerings for health and beauty conscious), which is through a subsidiary, hasn’t been fruitful with expected losses to the tune of around Rs 20 crore for FY09. This business has been a drag on the consolidated numbers (standalone PAT growth 20.9 per cent whereas consolidated growth is 18.2 per cent in FY08).
The bright note is the correction in real estate prices. Understandably, the company has been going slowly in opening outlets to take advantage of cheaper real estate prices going forward. Lower prices typically help in faster break-even of new stores.
Overseas gains
The International division share in the overall revenue pie has increased from around 10 per cent of its sales to 16 per cent in the last five 5 years on the back of an average 30 per cent annual growth. The H1FY09, too, was good with 40 per cent growth led by impressive performance in Gulf and other countries, thus propelling its share to 19 per cent of overall sales.
The company is spending aggressively on advertising to cater to the local diasporas in the respective countries, so as to maintain these growth rates. Additionally, Dabur is also set to start production of personal care products from its new plant in UAE by December 2008, to meet the increasing demand for its products.
Investment rationale
Dabur’s focus on sustaining earnings growth through organic growth and strategic acquisitions has been its forte. For instance, targeting markets with lower penetration levels like health supplements, packaged fruit juice and skin care creams will drive growth in the future.
Likewise, the company’s strategic procurement (sourced its raw materials forward in January, thus enabling to tug over the higher input costs over the year) and lower raw materials at this stage, provide cushion on the margin front. The savings on account of lower raw materials and tax rate (around 13 per cent) will help increase its advertising and promotion expenditure in the scenario of new launches.
To sum up, Dabur has the ingredients to record earnings growth of 16-17 per cent over the next two years. And, the stock which trades at around 16x its estimated FY10 earnings, can deliver 18-20 per cent annualised returns for the next two years.