Dabur India Ltd. April 2, 2018 PCG Pick of the Week-Dabur Ltd- 02 April...high wholesale dependence...

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Dabur India Ltd. PICK OF THE WEEK

April 2, 2018

Recommendation

Buy at CMP and add on Dips

Add on dips to

Rs. 327-302

Target

Rs. 401

Time Horizon

4 Quarter

Industry

FMCG

CMP

Rs. 327

Dabur India is one of the leading Indian consumer goods’ company, with a presence across Hair Care, Oral Care,

Health Care, Skin Care, Home Care and Foods segments. It is the world’s largest Ayurvedic and Natural Health

Care Company, with a portfolio of over 250 Herbal and Ayurvedic products. Dabur’s positioning on the ‘Health and

Wellness’ platform, backed by its thrust on ayurvedic, natural and herbal aspects has created a niche for its product

offerings. Its portfolio includes five flagship brands. Dabur is the master brand for natural healthcare products,

Vatika for premium personal care, Hajmola for digestives, ‘Real’ for fruit juices and beverages and Fem for fairness

bleaches and skin care products. It has a wide distribution network, covering over 6 million retail outlets in

bothurban and rural markets. Dabur now markets its vast line of products in over 120 countries, through 30

manufacturing units, 10 out of which are located outside India. Dabur's overseas revenue accounts for over 30%

of the company’s total turnover.

Investment Rationale: Out of the Dark clouds

Dabur has witnessed many challenges in its business during the last two years, on account of slow rural demand

(~45% of domestic), disruption owing to Patanjali, greater impact of demonetisation than other peers owing to

high wholesale dependence and weak international business. As a result, Dabur’s consolidated revenue declined

average ~2% during the eight quarters. Better revenue growth, stable inflation and a favourable product mix

would expand the EBITDA margin by ~200bps over FY18E-20E.

Recovery in revenues

The company’s domestic business recovered well (despite CSD being down by 23%), justifying our rural theme for

Dabur. Market share gain for Oral Care, Hair Oil and Honey is encouraging. Management is aiming for further

growth in market share in the coming quarters. International business is also expected to bounce back, with

healthy cc growth (Egypt, Turkey and Nigeria) and lower forex impact. FUNDAMENTAL ANALYST

Nisha Shankhala

[email protected]

HDFC Scrip Code DABIND

BSE Code 500096

NSE Code DABUR

Bloomberg DABUR IN

CMP as on 28 Mar’18 327

Equity Capital (Rs mn) 1761.5

Face Value (Rs) 1

Equity O/S (mn) 1761.5

Market Cap (Rs mn) 576017

Book Value (Rs) 32

Avg. 52 Week Vol 1578415

52 Week High 368

52 Week Low 265

Shareholding Pattern (%)

Promoters 68.1

Institutions 26.2

Non Institutions 5.7

PCG Risk

Rating* Yellow

* Refer Rating explanation

mailto:[email protected]

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April 2, 2018

Health supplements (17% of Indias’ Revenues)

(Portfolio: Dabur Chyawanprash, Dabur Honey and Dabur Glucose)

♦ Dabur Chyawanprash: The brand reported good growth before the start of winter. However, the demonetisation-led liquidity crunch, coupled

with a less intense and shorter winter compressed demand for the brand during peak winter months.

♦ Honey category continued to witness intense price-led competition. Dabur entered the Jams & Spreads market in India with a range of Honey

Fruit Spreads. It also introduced two new pre-mixed variants of Honey-Honey- Ginger and Honey-Tulsi, and launched Dabur Honey in an attractive

new squeezy bottle. During the year, Dabur established the first ever Mobile Honey Testing Lab.

♦ Dabur Glucose: The Company is reporting good growth in the category, led by an extended and intense summer. Dabur launched an Aampanna

variant, which met with good response from consumers.

OTC and Ayurvedic Ethicals (9%)

(Cough and Cold, Digestion, Women’s Health Care, Baby Care and Rejuvenation)

♦ In the Cough and Cold category, Ayurvedic Cough Syrups are gaining popularity, with an increasing number of consumers purchasing these

for self-medication. Dabur Honitusis is most preferred in this category.

♦ Dabur Lal Tel continues to be a market leader in the Ayurvedic Baby Massage Oil category.

♦ Women’s Health Care range comprises Dashmularishta, Ashokarishta and Dabur Activ Blood Purifier. The range was expanded with the

introduction of restorative tonic under the brand Dabur Woman Restorative Tonic.

♦ Rejuvenator portfolio, which includes Shilajit and Shilajit Gold are performing well.

Hair Care (22%)

(Hair Oils and Shampoos)

♦ Hair oil: The Company launched Dabur Brahmi Amla Hair Oil, which offers triple benefits of Brahmi, Amla and Vitamin E. As a part of its

geographic expansion strategy, it launched Anmol Jasmine Hair Oil in Maharashtra and Madhya Pradesh. Also, Almond Hair Oil was promoted

aggressively in South India.

Dabur launched an aggressive go-to-market strategy with both Sarson Amla Hair Oil and Anmol Coconut Oil, through a mix of aggressive pricing,

distribution expansion and entry into new geographies. Playing in the economy segment with Rs 10 offerings, both Brahmi Amla Hair Oil and

Sarson Amla Hair Oil have been working towards converting loose hair oil users.

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April 2, 2018

PICK OF THE WEEK

1st July 2017

♦ Shampoos (14% of Hair Care revenue): Business reported a slowdown in line with the industry, as the category remained sluggish and

extremely competitive at the value end of the market. Dabur is now revamping its portfolio with a focus on the brand’s herbal heritage.

Oral Care (16%)

[Portfolio: Tooth pastes (with brands like Dabur Babool, Dabur Red Paste and Dabur Meswak) and Tooth powder (with Dabur Lal Dant Manjan)].

Oral care is one of the few segments that witnessed growth in FY17 on the back of a herbal wave trend in the category. Dabur’s toothpaste

brands reported market share gains with the flagship brand Dabur Red Paste emerging as the third largest toothpaste brand in India. Meswak

Toothpaste reported good growth during the year, with market share gains. The Toothpowder segment offered Dabur Lal Dant Manjan, and

witnessed steady demand, and is the leading toothpowder brand in the country today.

Home Care (7%)

((a) Mosquito repellents under the brand Odomos, (b) Air fresheners under Odonil and (c) Toilet cleaners under the Sanifresh brand)

♦ Apart from Oral Care & Food, Home Care is another segment, which has seen growth. Dabur’s mosquito repellant brand Odomos reported

good growth during the year, riding on sustained activity in the prevention of mosquito borne diseases.

♦ Odonil performed well, as it established itself as the Air Freshener expert.

♦ Sani fresh reported a steady performance, despite competition from private label players and established brands.

Foods (19%)

(Portfolio: Packaged Fruit Juices & Beverages, and Culinary Pastes.)

♦ It has over 56% market share in the fruit juice segment.

♦ Company expanded its range with the launch of new variants like Mosambi (sweet lime) under the Réal brand, and Amla Plus Juice under Réal

Wellnezz.

♦ To cater to the growing demand from young consumers for a fizzy yet healthy drink, Dabur test marketed a range of fizzy fruit juice-based

drinks (Réal VOLO).

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April 2, 2018

New launches: Higher thrust on launches in the herbal space

♦ Honitus Hot Sip: Ayurvedic kadha for cough and cold.

♦ Dabur Red Ayurvedic Gel toothpaste

♦ Madhurakshak Activ: Advanced product for effective management of Diabetes

♦ Range of Honey Fruit Spreads in four exotic fruit variants

♦ Two specialized salon products — OxyLife Tan Clear and OxyLife Pro-Youth Pure Oxygen Facials

♦ Amla Plus 100% Juice

♦ Dabur Brahmi Amla hair oil and Dabur Anmol Coconut Jasmine hair oil.

♦ Two new variants in Honey — Honey-Ginger and Honey-Tulsi.

Risk & Concerns:

A slowdown in rural demand due to lower government spending or monsoon failure could impact Dabur’s revenues significantly.

High competition from players like ITC, Patanjali etc may put pressure in company’s volume.

View & Valuation:

We expect Revenue/EBITDA/PAT CAGR of 14/20/22% respectively over FY18E-20E. With domestic and international recovery at inflexion

point, we see further re-rating in the stock. We value Dabur based on P/E of 35x FY20EPS, and arrive at TP of Rs 401. We recommend

investors’ to Buy the stock at CMP and add on dips to Rs 302 with TP of Rs 401.

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April 2, 2018

Quarterly Segmental:

Source: Company, HDFC sec Research

Year to March (Rs mn) 3QFY18 3QFY17 YoY (%) 2QFY18 QoQ (%) 9MFY18 9MFY17 YoY (%)

Segmental Revenues

Consumer Care Business 16,969 15,625 8.6 16,147 5.1 47,367 47,780 -0.9

Foods 2,107 2,191 -3.8 2,828 -25.5 8,043 8,162 -1.5

Retails 321 355 -9.6 265 21.1 864 925 -6.6

Others 205 305 -32.8 309 -33.8 722 843 -14.3

Total 19,601 18,476 6.1 19,549 0.3 56,996 57,710 -1.2

Segmental EBIT

Consumer Care Business 4,187 3,835 9.2 4,285 -2.3 11,674 11,594 0.7

Foods 275 187 47.1 428 -35.7 1,028 1,088 -5.5

Retails 16 2 na 6 157.1 27 -12 na

Others 16 3 367.6 10 63.9 11 35 -68.8

Total 4,494 4,027 11.6 4,729 -5 12,740 12,705 0.3

Less:

(a) Interest Cost & Bank Charges 132 139 -5.2 133 -0.8 398 423 -6

(b) Other Un-allocable Expenses 201 191 na 87 130.4 294 491 na

PBT 4,162 3,697 12.6 4,508 -7.7 12,048 11,790 2.2

Capital Employed

Consumer Care Business 20,077 22,687 -11.5 21,834 -8 20,077 22,687 -11.5

Foods 3,137 4,246 -26.1 3,543 -11.5 3,137 4,246 -26.1

Retails 219 269 -18.5 276 -20.6 219 269 -18.5

Others 320 325 -1.4 330 -3 320 325 -1.4

Total 23,753 27,526 -13.7 25,983 -8.6 23,753 27,526 -13.7

Unallocable Capital Employed 8,483 18,162 -53.3 27,031 -68.6 8,483 18,162 -53.3

Total Capital Employed 32,237 45,688 -29.4 53,014 -39.2 32,237 45,688 -29.4

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April 2, 2018

Revenue Contribution


Domestic Revenue Breakup


Revenue To Grow At ~14% CAGR Between FY18-20E


-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

20,000

40,000

60,000

80,000

1,00,000

1,20,000

FY16 FY17 FY18E FY19E FY20E

in R

s. m

n

Net Revenues Growth

EBITDA And EBITDA Margin


17%

18%

19%

20%

21%

22%

23%

24%

0

5,000

10,000

15,000

20,000

25,000

FY16 FY17 FY18E FY19E FY20E

in R

s. m

n

EBITDA EBITDA Margin (%)

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April 2, 2018

Income Statement (Rs mn) FY16 FY17 FY18E FY19E FY20E

Net Revenues 78,486 77,014 78,944 90,301 1,02,854

Growth (%) 0.3 -1.9 2.5 14.4 13.9

Material Expenses 38,294 38,432 39,226 44,500 49,902

Employee Expense 7,941 7,896 8,370 8,788 9,228

ASP Expense 7,716 6,461 7,263 8,579 9,771

Distribution Expense 1,760 1,696 1,579 1,625 1,749

Other Expenses 7,592 7,440 5,949 7,043 8,777

EBITDA 15,183 15,090 16,557 19,766 23,427

EBITDA Growth (%) 15.3 -0.6 9.7 19.4 18.5

EBITDA Margin (%) 19.3 19.6 21 21.9 22.8

Depreciation 1,332 1,429 1,624 1,741 1,858

EBIT 13,851 13,662 14,933 18,024 21,569

Other Income (Including EO Items) 2,172 2,984 3,092 3,541 4,151

Interest 485 540 520 361 186

PBT 15,538 16,105 17,504 21,205 25,534

Total Tax 2,999 3,301 3,472 4,241 5,127

Adjusted PAT 12,512 12,789 14,036 16,967 20,411

APAT Growth (%) 17.4 2.2 9.8 20.9 20.3

Adjusted EPS (Rs) 7.1 7.3 8 9.6 11.6


Balance Sheet (Rsmn) FY16 FY17 FY18E FY19E FY20E

SOURCES OF FUNDS

Share Capital - Equity 1,759 1,762 1,762 1,762 1,762

Reserves 39,842 46,712 54,388 62,874 72,685

Total Shareholders’ Funds 41,601 48,474 56,149 64,636 74,447

Minority Interest 217 248 245 241 238

Long Term Debt 3,415 4,749 3,749 2,749 1,749

Short Term Debt 4,497 4,403 3,903 2,403 903

Total Debt 7,912 9,153 7,653 5,153 2,653

Net Deferred Taxes 882 1,080 1,080 1,080 1,080

Other Non-current Liabilities

&Provns 509 534 587 646 711

TOTAL SOURCES OF FUNDS 51,121 59,489 65,714 71,756 79,128

APPLICATION OF FUNDS

Net Block 17,280 19,584 21,246 21,504 21,646

CWIP 609 598 616 635 657

Other Non- Current Assets 627 1,187 1,185 1,201 1,219

Total Non-current Assets 18,516 21,369 23,047 23,341 23,522

Inventories 10,965 11,067 11,344 12,976 14,780

Debtors 8,097 6,504 6,667 7,626 8,686

Other Current Assets 4,288 3,294 3,573 3,881 4,219

Cash & Equivalents 27,292 35,077 40,848 46,525 53,569

Total Current Assets 50,642 55,941 62,433 71,008 81,255

Creditors 14,505 14,764 15,134 17,311 19,717

Other Current Liabilities

&Provns 3,532 3,058 4,632 5,282 5,932

Total Current Liabilities 18,037 17,822 19,766 22,593 25,649

Net Current Assets 32,605 38,120 42,667 48,415 55,606

TOTAL APPLICATION OF

FUNDS 51,121 59,489 65,714 71,756 79,128


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April 2, 2018

Cash Flow Statement (Rs mn) FY16 FY17 FY18E FY19E FY20E

Reported PBT 15,572 16,105 17,504 21,205 25,534

Non-operating & EO Items -1,368

Interest Expenses 480 540 520 361 186

Depreciation 1,338 1,429 1,624 1,741 1,858

Working Capital Change -2,417 2,245 1,261 -49 -121

Tax Paid -2,779 -3,301 -3,472 -4,241 -5,127

OPERATING CASH FLOW ( a ) 10,826 17,017 17,439 19,017 22,331

Capex -2,056 -3,706 -3,286 -2,000 -2,000

Free Cash Flow (FCF) 8,769 13,311 14,152 17,017 20,331

Investments -5,628 -6,100 -2,500 -2,500 -2,500

Non-operating Income 1,501

INVESTING CASH FLOW ( b ) -6,183 -9,806 -5,786 -4,500 -4,500

Debt Issuance/(Repaid) 576 1,241 -1,500 -2,500 -2,500

Interest Expenses -540 -520 -361 -186

FCFE 4,066 6,510 13,673 17,378 20,517

Share Capital Issuance 171 -1,145 0 0 0

Dividend -3,506 -4,770 -6,360 -8,480 -10,600

Others -1,190 -330

FINANCING CASH FLOW ( c ) -3,949 -5,545 -8,381 -11,341 -13,286

NET CASH FLOW (a+b+c) 693 1,666 3,272 3,176 4,545

EO Items, Others -2,470

Closing Cash & Equivalents 990 2,675 5,947 9,123 13,668


Key Ratios FY16 FY17 FY18E FY19E FY20E

PROFITABILITY (%)

GPM 51.2 50.1 50.3 50.7 51.5

EBITDA Margin 19.3 19.6 21 21.9 22.8

EBIT Margin 17.6 17.7 18.9 20 21

APAT Margin 15.9 16.6 17.8 18.8 19.8

RoE 33.3 28.4 26.8 28.1 29.4

RoIC 51.8 47.4 51.2 60.8 71.7

RoCE 28.2 24.4 23.6 25.6 27.7

EFFICIENCY

Tax Rate (%) 19.3 20.5 20 20 20

Fixed Asset Turnover (x) 3.1 2.6 2.4 2.6 2.8

Inventory (days) 51 52.5 52.5 52.5 52.5

Debtors (days) 37.7 30.8 30.8 30.8 30.8

Other Current Assets (days) 19.9 15.6 16.5 15.7 15

Payables (days) 67.5 70 70 70 70

Other Current Liab&Provns (days) 16.4 14.5 21.4 21.3 21.1

Cash Conversion Cycle (days) 24.7 14.4 8.4 7.6 7.2

Net D/E (x) -0.47 -0.53 -0.59 -0.64 -0.68

Interest Coverage (x) 0.03 0.04 0.03 0.02 0.01

PER SHARE DATA (Rs)

EPS 7.1 7.3 8 9.6 11.6

CEPS 7.9 8.1 8.9 10.6 12.6

Dividend 2.2 2.3 3 4 5

Book Value 23.6 27.5 31.9 36.7 42.3

VALUATION

P/E (x) 46.1 44.8 40.9 34.1 28.2

P/BV (x) 13.9 11.9 10.3 8.9 7.7

Dividend Yield (%) 0.67 0.7 0.9 1.2 1.5


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April 2, 2018

Rating Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING RISK - RETURN BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST PRICES CAN FALL

20% OR MORE

IF RISKS MANIFEST PRICE CAN FALL 15%

& IF INVESTMENT RATIONALE

FRUCTFIES PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE

FRUCTFIES, PRICES CAN RISE BY 20% OR

MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS


35% OR MORE





FRUCTFIES, PRICES CAN RISE 35% OR

MORE

RED HIGH RISK - HIGH RETURN STOCKS


50% OR MORE





FRUCTIFIES,PRICES CAN RISE BY 50%

OR MORE

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April 2, 2018

200

220

240

260

280

300

320

340

360

380

Close Price

Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year. Sell: Stock is expected to decline by 10% or more in the next 1 Year.

11 | P a g e


April 2, 2018

Disclosure: I, Nisha Sankhala, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or her relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the Subject Company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. 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mailto:[email protected]

Dabur India Ltd. April 2, 2018 PCG Pick of the Week-Dabur Ltd- 02 April...high wholesale dependence...

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