Motilal Oswal Neutral on Dabur India

Motilal Oswal has maintained neutral rating on Dabur India with a target of Rs 135 in its October 29, 2012 research report.

“Dabur's 2QFY13 results were mixed, with consolidated sales exceeding our estimates and Adj PAT at INR2.02b, though up 16% YoY, missed our estimate of INR2.12b by 5%. Performance in cash cow hair oils and oral care segments continues to remain modest. Company is seeing the benefits of recent rural distribution expansion in 10 states.”

“Consolidated gross margin expanded 110bp to 50.6% on the back of easing input costs and price hikes. EBITDA margin declined 180bp to 14.1% due to higher ad expenses (up 180bp). While EBITDA grew a modest 9.3% to INR2.6b (est INR2.8b), the 13.5% decline in interest cost and 61% jump in other income, coupled with a lower tax rate (down 120bp), resulted in 16.4% PAT growth to INR2.02b (est INR2.12b).  Standalone domestic FMCG sales posted a healthy 15% growth due to 9% volume uptick, driven by shampoo, foods, skin care and home care segments. Oral and hair segments underperformed.  International division posted a strong 25% revenue growth led by INR depreciation (constant currency organic growth at 16%). GCC and Nigeria outperformed with 21% and 20% growth, respectively.”

“We believe Dabur's distribution expansion can provide staggered volume benefits in 2HFY13 and FY14. Sustained brand investments, post 2HFY12, aided in good volume growth momentum for the company. However, continued underperformance in hair oil and oral care remains a concern. We maintain FY13 and FY14 estimates and assume PAT CAGR of 20% for FY12-14. The stock trades at 29.5x FY13E and 24x FY14E EPS. We value Dabur at 25x FY14 EPS and arrive at a one-year forward target price of INR135, a potential upside of 5%. Maintain neutral. Increase in input costs constitutes the key risk,” says Motilal Oswal research report.

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