Dabur's margins can expand despite Q1 disappointment: Morningstar

Says slower than expected growth in consumer care division resulted in numbers falling short of estimates

Research-provider Morningstar has said that it has not changed its long-term investment thesis on household and personal products company Dabur despite the disappointments in the current quarter. 

 

The company’s consumer care and food divisions could help expand margins in the long run, though the stock is slightly overvalued at current levels, according to a Morningstar India’s Equity Analyst Report dated 30 Jul 2014.

 

“Earnings before interest and tax clocked a 12.9% operating margin, versus our 15.2% estimate for 2015. This was on account of relatively slower sales growth of 13.2% versus our 15% estimate in the most profitable consumer care business, which accounts for over 80% of total sales,” said the report authored by Equity Research Analyst Suruchi Jain. The results for the first quarter may not be indicative of the performance for the rest of the year, noted the report, which said that history suggests there would be improvement in the coming days. 

 

“...we remain upbeat on Dabur’s full-year performance as first-quarter growth and profits track seasonally slower, as evidenced from prior years. These lower margins are similar to those witnessed a year earlier,” it said. 

 

Full year operating margins could come in at 15.2%, according to the report. It assigned a fair value of Rs 168 to the stock, noting that it was currently trading ahead of fair value. 

 

The company’s shares were trading at Rs 205 on the National Stock Exchange at 12:30 pm.