October 29, 2015 / 16:24 IST
Religare's report on Dabur India
Dabur posted a below-expected Q2 with net sales/EBITDA/adj. PAT up 8.7%/ 15.9%/18.7% YoY as domestic volumes grew at a slower than expected pace (5% YoY vs. RCMLe 6-7%) due to supply disruptions. EBITDA margins however were largely in line on lower input and stable A&P costs. We slightly pare estimates to factor in weak consumer demand and supply issues, but retain BUY with a Sep’16 TP of Rs 310 (vs. Rs 325) given Dabur’s ability to churn out high single-digit volume growth on a consistent basis.
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Net sales grow 8.7% YoY: Consol. net sales grew 8.7% YoY to Rs 20.9bn with domestic/international FMCG revenues up 8.8%/6.4% YoY. Domestic volume growth came in at 5% YoY (RCMLe 6-7%) on account of a festive season shift to Q3 and supply disruptions from Nepal as political disturbances hit the beverage segment. Excluding the beverage segment, volume growth was in line at 7% YoY. Consumer care business grew 9.6% YoY with segment EBIT margins also improving 185bps to 24.2%. Hair Care segment posted 9.4% YoY growth with double-digit volume-led growth in hair oils, whereas shampoos reported slower growth amid heightened competition. The oral care segment continued to do well with toothpastes growing 28.1% YoY led by Dabur Red Paste and Dabur Meswak.
EBITDA margins expand 120bps: EBITDA grew 15.9% YoY with margins expanding 120bps YoY to 19.1% (RCMLe: 19.4%). The margin expansion was driven by a 195bps YoY improvement in gross margins to 55%, with A&P spends increasing only 10bps YoY to 13.3%. Adj. PAT grew 18.7% YoY to Rs 3.4bn led by a 33% YoY growth in other income. Tax rate remained flat YoY at 17.6%.
Maintain BUY with a Sep’16 TP of Rs 310: We pare our FY16/FY17/FY18 earnings estimates by ~1.9%/2.9%/3.9% to build in the slower-than-expected recovery in consumer demand. We accordingly revise down our Sep’16 TP to Rs 310 (from Rs 325 earlier) and maintain BUY on the stock.
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