Chief Engineer

Topics: Revenue, Crore, Fast moving consumer goods Pages: 41 (10489 words) Published: February 2, 2012
August 18, 2009 | FMCG

Initiating Coverage

Dabur India (DABIND)
Creating waves in the FMCG space…
Dabur India Ltd, (DIL) with its diverse product portfolio, extensive presence in under-penetrated categories and ability to foray into new categories by successfully driving inorganic and organic growth is expected to capitalise on growing FMCG trends. Subsequently, we expect net sales and net profit to grow at a CAGR of 16.9% and 19.5%, respectively from FY09E-FY11E. We are initiating coverage on the company with a PERFORMER rating.

Current Price Rs 122 Potential upside 16.3%

Target Price Rs 142 Time Frame 12 months

PERFORMER
Analysts’ Name Sanjay Manyal sanjay.manyal@icicisecurities.com Ritika Shewakramani ritika.shewakramani@icicisecurities.com Sales & EPS trend 4500.0 3500.0 2500.0 1500.0 500.0 FY07 FY08 FY09 FY10EFY11E Net sales (Rs crore) EPS (Rs)

Diversification of product portfolio led by inorganic growth DIL’s product portfolio is present across diverse categories, namely personal care, health care, home care, foods and classical ayurvedic products. It is expected to sustain its sales growth momentum buoyed by a slew of product launches and synergistic inorganic acquisitions (Balsara & Fem Care Pharma Ltd), thereby, enabling it to further supplement its product portfolio.

Renewed focus on international and consumer health businesses On account of the acceleration in growth witnessed in DIL’s international and consumer health businesses, we foresee revenue contributions from these divisions increase significantly. Subsequently, we expect the international business to contribute 24% to total revenues in FY11E (from 18.5% in FY09), buoyed by expansions into new regions and the consumer health business contributing 8.7% to total revenues in FY11E (from 7.3% in FY09) led by new ayurvedic product launches in its over the counter (OTC) portfolio.

8.0 6.0 4.0 2.0 0.0

Effectively set to withstand deficient rainfall
Although the deficiency in rainfall could affect demand in rural areas, we do not expect DIL to be severely affected, given the non-discretionary nature of its products and its presence across an array of price points. Additionally, since only 17% of the company’s raw material costs are dependent on agricommodities (sugar and edible oil), we believe the company would be least vulnerable to inflationary pressures. At the current market price of Rs 122, DIL is trading at 23.0x its FY10E EPS of Rs 5.3 and 19.1x its FY11E EPS of Rs 6.4. Although, historically DIL has traded at a discount to HUL, given DIL’s high growth rate, foray into new categories via synergistic acquisitions (Balsara and FCPL) and strong earnings visibility, we value the stock at 22.0x its FY11E EPS of Rs 6.4. This is on par with the multiple of HUL. Using the DCF methodology, we have arrived at a fair value of Rs 142, which is 22.0x its FY11E EPS of Rs 6.4. We are initiating coverage on the stock with a PERFORMER rating. Exhibit 1: Key Financials

Year to March 31 Net Profit (Rs crore) Shares in issue (crore) EPS (Rs) Growth (%) P/E (x) Price/Book (x) EV/EBITDA (x) EBITDA Margin (%) Net Profit Margin (%) RoNW (%) RoCE (%) FY07 282.1 86.3 3.3 36.9 22.0 31.0 15.6 12.8 57.8 47.0 FY08 333.7 86.4 3.9 17.9 31.2 17.1 26.2 17.1 14.1 60.8 51.8 FY09 390.8 86.5 4.5 16.9 27.1 12.9 22.8 16.6 13.9 54.4 46.1 FY10E 455.3 86.5 5.3 13.1 23.0 10.5 19.1 17.4 14.0 50.0 44.5 FY11E 557.8 86.5 6.4 22.0 19.1 8.6 15.9 17.8 14.7 50.1 45.5

Stock Metrics
Bloomberg Code Reuters Code Face value (Rs) Promoters Holding Market Cap (Rs cr) 52 week H/L Sensex Average volumes DABUR IN DABU.BO 1 70.5 10958.5 141.9/60 14784 299114

Valuation

Comparative return metrics
Stock return Hind. Unilever ITC Marico Dabur 3M 9.8 7.5 21.9 26.0 6M 1.9 15.3 37.9 45.8 12M 21.6 6.6 21.1 35.0

Price Trend
180.0 160.0 140.0 120.0 100.0 80.0 60.0

Absolute Sell

Target Price

Absolute Buy
5-Apr-08 5-Apr-09

5-Apr-07

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