DABUR INDIA LTD INITIATE BUY TARGET PRICE 163 Ltd.pdf · DABUR INDIA LTD INITIATE BUY TARGET PRICE...

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Microsec Research 26 APRIL 2013

DABUR INDIA LTD

INITIATE BUY

TARGET PRICE 163

Analyst : Naveen Vyas Email_id : [email protected]

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We Initiate Dabur India Ltd a BUY. The 128-year-old company, promoted by the Burman family, had started operations in 1884 and is today one of India’s leading FMCG Companies with Revenues of more than US$1 Billion. Dabur is today India’s most trusted name and the world’s largest Ayurvedic and Natural Health Care Company. Dabur is a household brand having large distribution network and strong rural presence. Dabur has successfully transformed itself from being a family-run business to become a professionally managed enterprise. Dabur's products also have a huge presence in the overseas markets and are today available in over 60 countries across the globe.

Investment Highlights

‘Volume is expected to grow in a range of 9-10% for FY14E in a challenging business environment : Dabur is expected to maintain a volume growth of 9-10% for FY14E which we think is positive for the company in a challenging business enironment, witnessing slowdown in economy and cap in subsidies across sectors. The company’s mass product appeal, limited discretionary products portfolio and rural expansion will help it to maintain the volume growth.

Strong Portfolio of Powerful Brands and wide distrubution network : Dabur has strong portfolio of powerful brands like ‘Dabur, Vatika, Hajmola, Real and FEM ’. It spends around 13-14% of its sales on the advertisement every year to increase its brand presence. The company has build a wide distribution network covering 5.8 million retailers across the country to support its growth.

Namaste Business to seek strong revival in FY14: Namaste which contributes around 10% of the total sales of the company is expected to perform better in FY14 on back of current restructuring initiatives taken by the company. The company is undertaking brand re-launches for key products like ORS, working on distribution restructuring and creating an efficient supply chain for Namaste in the African market.It is also setting up a manufacturing base in West Asia, Nigeria and South Africa.

Well Diversified Business Model: Dabur India business operation is well diversified. Around 30% of its sales comes from international business and 70% from domestic business. The products range of the company are also well diversified covering key consumer product categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods.

Exhibit 1.Dabur India – Historical Financials and Projections – INR crores

Particulars FY10A FY11A FY12A FY13E FY14E

Net Sales 3,416.0 4,105.0 5,305.0 6,205.0 7,318.0

Growth (%) 20% 29% 17% 18%

EBITDA 648.0 801.0 890.0 1,024.0 1,237.0

EBITDA Margins (%) 19.0% 19.5% 16.8% 16.5% 16.9%

Adjusted Net Profit 503.0 569.0 645.0 767.0 948.0

Net Profit Margins (%) 14.7% 13.9% 12.2% 12.4% 13.0%

Net Profit Growth (%) 13% 13% 19% 24%

EPS (Adjusted) 2.90 3.27 3.70 4.40 5.44

P/E 50.36 44.66 39.47 33.19 26.85

P/BV 27.50 19.90 15.70 12.07 9.36

RoE 58.8% 51.8% 44.7% 41.0% 39.3%

Source: Company, Microsec Research

DABUR India Ltd

BUY Sector – FMCG

Current Market Price (INR) 146

Target Price 163

% Upside 12%

52 Week High / Low (INR) 148 / 101

Market Capitalization (In INR cr) 25,455

Market Data

BSE Code 500096

NSE Code DABUR

Bloomberg Ticker DABUR.IN

Reuters Ticker DABUR.BO

Face Value (INR) 1.00

Equity Share Capital (Rs. cr.) 174.29

Average 3 Year P/E 33.1x

Beta vs Sensex 0.4x

Average Daily Volmes (6 M) 1,222,000

Dividiend Yield 0.89

Return (%) 1YR 32

STOCK SCAN

80.00

100.00

120.00

140.00

4/27

/201

2

5/27

/201

2

6/27

/201

2

7/27

/201

2

8/27

/201

2

9/27

/201

2

10/2

7/20

12

11/2

7/20

12

12/2

7/20

12

1/27

/201

3

2/27

/201

3

3/27

/201

3

Dabur SENSEX

Shareholding

DII

4.25%

Others

6.85%

FIIS

20.24%

Promoters

68.66%

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Company Profile

Dabur India Ltd is one of India’s leading FMCG Companies with Revenues of more than US$1 Billion. The 128-year-old company, promoted by the Burman family, had started operations in 1884 and is today India’s most trusted name and the world’s largest Ayurvedic and Natural Health Care Company. Dabur India is also a world leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic products. Dabur's FMCG portfolio today includes five flagship brands with distinct brand identities -- Dabur as the master brand for natural healthcare products, Vatika for premium personal care, Hajmola for digestives, Réal for fruit juices and beverages and Fem for fairness bleaches and skin care products. Dabur today operates in key consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. The company has a wide distribution network, covering over 5.8 million retail outlets with a high penetration in both urban and rural markets. Dabur's products also have a huge presence in the overseas markets and are today available in over 60 countries across the globe. Its brands are highly popular in the Middle East, SAARC countries, Africa, US, Europe and Russia. Dabur's overseas revenue today accounts for over 30% of the total turnover. From its humble beginnings in the bylanes of Calcutta, Dabur India Ltd has come a long way today to become one of the biggest Indian-owned consumer goods companies with the largest herbal and natural product portfolio in the world. Overall, Dabur has successfully transformed itself from being a family-run business to become a professionally managed enterprise.

Key Milestones

2006

• Dabur figured

in Top 10 Great

places to work.

2008

• Acquired Fem

Care Pharma

entering

mainstream

skin care.

2010

• Overseas acquisitions –Hobi Group, Turkey and Namaste Laboratories, US.

2012

• Crossed INR50 Billion mark in annual revenues and Market Cap of US$4 Billion

1998

• Professionalized

with Burman

Family handling

over day to

management

2003

• Pharma Business

de-merged to

focus on core

FMCG Business.

2004

• International

Business set up

in Dubai to tap

overseas

opportunity.

2005

• Acquired Balsarastrengthening oral Care & gaining entry into Home Care.

1884

• Dr. SK Burman

started an

Ayurvedic

Pharmacy in

Kolkata.

1972

• The company

shifted its base

to Delhi from

Kolkata.

1986

• Registered as a

Public Limited

Company.

1994

• Listed on the Bombay Stock Exchange.

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Business Overview of Dabur India

Dabur India Ltd business is divided into two broad categories i.e. Domestic Business and International Business. Domestic Business contributes around 70% of its sales and the rest is international. Domestic Business includes Consumer Care, Foods, Retail and Others whereas International Business includes Dabur international, Namaste Lab and Hobi Group sales.

Consumer Care Business

The Consumer Care Business is the largest segment, contributing to 56% of consolidated sales and grew by 11.4% during fiscal 2011-12. The segment is divided into the key verticals of Health care and Home and Personal care. Source : Company database

Contribution to Consumer Care Business

Skin care6%

Home care6%

Hair care30%

Health care21%

Oral care17%

OTC12%

Digestives8%

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Foods Business

The Foods business at present includes packaged fruit juices and nectars under the brands Real and Real Activ and culinary pastes under the brand Hommade

International Business

Dabur's International Business continued on a strong growth trajectory with sales growing by 78.3% to INR1616 crores. The International Business now contributes 30.3% to consolidated sales. The growth in International business has been supported by two overseas acquisitions - Hobi Group and Namaste Laboratories, LLC which came under the Dabur fold. Source : Company database

International Sales Regional Break up

Middle East30%

US26%

Africa22%

Asia16%

Others6%

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FMCG Industry Overview

The Indian FMCG sector is the fourth largest sector in the economy with a total market size of INR189500 crore. The market is estimated to grow to US$ 100 billion by 2025, according to market research firm Nielsen. In the last decade the FMCG sector has grown at an average of 11% a year and in the last five years, annual growth accelerated to 17%. FMCG sector in India continues to grow well in both urban and rural areas. Rural India contributes to around one third of FMCG sales in India

Emerging FMCG Trends In India

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Penetration Level Of Various Products In India

Industry Outlook

With a big demand push from rural India, the fast moving consumer goods (FMCG) industry is expected to witness a robust growth of 18 per cent over the next 4-5 years and emerge as the sector which will claim the biggest component of the consumer expenditure by the end of the 12th Plan, an ASSOCHAM Eco Pulse study has indicated. It said within the FMCG industry, the product categories which are expected to see attractive growth are the packaged foods category, toiletries, beverages, detergents, edible oil, and cosmetics. In the food category, thanks to improving purchasing power, consumption pattern is shifting towards high value and protein products such as vegetables, fruits, milk, meat, fish and eggs. Rural India is evolving as the engine of growth for FMCG sector Risks and Challenges

Diverse consumer preferences Increasing competition Rising logistics, procurement costs Ability to win rural consumers Slowdown in rural demand High Inflation Removal of import restrictions resulting in replacement of domestic brands Increasing clutter – advent of price wars

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Investment Thesis

‘Volume is expected to grow in a range of 9-10% for FY14E in a challenging business environment : Dabur is expected to maintain a volume growth of 9-10% for FY14E which we think is positive for the company in a challenging business enironment, witnessing slowdown in economy and cap in subsidies across sectors. The company’s mass product appeal, limited discretionary products portfolio and rural expansion will help it to maintain the volume growth.The Volume growth of Dabur India ltd, on an average, has been in double digits from the last 12 quarters

Strong Portfolio of Powerful Brands and wide distrubution network : Dabur has strong portfolio of powerful brands like ‘Dabur, Vatika, Hajmola, Real and FEM ’. It spends around 13-14% of its sales on the advertisement every year to increase its brand presence. The company has build a wide distribution network covering 5.8 million retailers across the country to support its growth. Dabur's FMCG portfolio today includes five flagship brands with distinct brand identities -- Dabur as the master brand for natural healthcare products, Vatika for premium personal care, Hajmola for digestives, Réal for fruit juices and beverages and Fem for fairness bleaches and skin care products.

Distribution Network with total reach of 5.8 mn Retail Outlets

Volume Growth (%) of Last 12 Quarters

12.0

%

17.0

%

14.0

%

10.0

%

9.0%

9.0% 10

.0%

11.0

%

12.0

%

12.0

%

11.0

%

9.5%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

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Namaste Business to seek strong revival in FY14E: Namaste which contributes around 10% of the total sales of the company is expected to perform better in FY14 on back of current restructuring initiatives taken by the company. The company is undertaking brand re-launches for key products like ORS, working on distribution restructuring and creating an efficient supply chain for Namaste in the African market.It is also setting up a manufacturing base in West Asia, Nigeria and South Africa The slow growth of Namaste business in US was due to change in the brand name from Organic Root Stimulator to ORS because of some regulatory issue as a result of which the company has to do alteration of the entire brand architecture and incur brand cost for the same in FY13. Now the process has been complete and the business is expected to revive strongly in FY14E. Overview of Namste Business: Dabur India Limited through its subsidiary Dabur International Limited acquired 100% stake in Namaste Laboratories LLC for $100 million (about INR450 crore), in an all-cash deal on November 2010. Namasté is a leading ethnic hair care products company, having products for women of colour, with revenues of $95 million (CY2010) from US, Europe, Middle East and African markets. Well Diversified Business Model: Dabur India business operation is well diversified. Around 30% of its sales comes from international business and 70% from domestic business. The products range of the company are also well diversified covering key consumer product categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. This structural shift in consumption pattern, termed popularly as ‘the consumption Source : Company database

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Financials Snapshot

Net Sales [INR‐Crore]

2,3852,831

3,416

4,105

5,305

‐

1,000

2,000

3,000

4,000

5,000

6,000

FY08 FY09 FY10 FY11 FY12

Normalised PAT [INR‐Crore]

333

391

503

569

645

0

80

160

240

320

400

480

560

640

720

800


EBIDTA [INR‐Crore]

428492

648

801

890

19.0% 19.5%16.8%

17.4%17.9%

0

200

400

600

800

1000


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

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9M Financials INR cr

Peer comparison

Source: Bloomberg Consensus, company database; Financials in INR crores Note: Nestle India and Glaxosmithkline Consumer financial year end in December.

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Valuation

At the CMP of INR146, the stock discounts its FY13E EPS of INR4.4 by 33x and its FY14E EPS of INR5.4 by 27x. Its 3 year and 5 year Average P/E works out to be 33x and 31x respectively as per Bloomberg. With Strong Brand Value, larger rural penetration, revival expected in international business and stable business outlook, makes Dabur India a good bet for investment. We assign a multiple of 30x on its FY14EPS of INR5.44 to arrive at a Target price of INR163 (i.e. 12% upside from CMP) for a time horizon of 12 months.

Key concern

Highly Competitive Industry: FMCG Industry is highly competitive industry with more

players coming in the fields of personal care, oral care and skin care. Consumers are very

price sensitive in this industry.

Major Slowdown in the economy - Any major slowdown in the economy will have a negative impact on the volume growth of the company and may affect its topline .

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Recent Launches - India

Recent Launches - International

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Income Statement (INR crore)

Ratio Analysis

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Balance-Sheet (INR crore)

Cash Flow

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Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment AVP‐Research [email protected]

Naveen Vyas Midcaps, Market Strategies AVP‐Research [email protected]

Sutapa Roy Economy Research Analyst s‐[email protected]

Sanjeev Jain BFSI Research Analyst [email protected]

Anik Das Mid Cap Research Analyst [email protected]

Neha Majithia Mid Cap Research Analyst [email protected]

Soumyadip Raha Mid Cap Executive Research [email protected]

Saroj Singh Mid Cap Executive Research [email protected]

Kapil Bhati Mid Cap Executive Research [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical VP [email protected]

Ranajit Saha Technical Research Sr. Manager [email protected]

Institutional Desk

Dhruva Mittal Institutional Equities Sr. Manager [email protected]

Puja Shah Institutional Desk Dealer [email protected]

PMS Division

Siddharth Sedani PMS Research AVP [email protected]

Ketan Mehta PMS Sales AVP [email protected]

Research: Financial Planning Division

Shrivardhan Kedia FPD Products Manager Research [email protected]

Research‐Support

Subhabrata Boral Research Support Asst. Manager Technology [email protected]

Recommendation

Strong Buy >20%

Buy between 10% and 20%

Hold between 0% and 10%

Underperform between 0% and ‐10%

Sell < ‐10%

Expected absolute returns (%) over 12 months

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