Dabur should be able to sustain the top line momentum this year, but needs to improve profitability.
It’s taken a while but the Rs 2,834 crore Dabur’s finally getting there. In its best sales performance in a decade, the consumer and health care products firm turned in a top line growth of 18 per cent in FY09, way better than the 15 per cent posted in 2007-08. The strength of the numbers lay both in the high volumes – 8.5-13.5 per cent – and realisations.
However, profitability took a bit of a hit as higher raw material prices pressured operating margins which came off by 50 basis points to 16.8 per cent. If the bottom line grew by about 18 per cent during the year, it was partly due to a lower effective tax rate of 12.2 per cent.
The sheen’s still there
The hair-care category, comprising hair oil and shampoos, which contributes a fourth to the firm’s sales grew by 23 per cent.
Relaunches as also new variants helped maintain the growth momentum in this category. The entry into the light hair oil segment with Dabur Amla Lite and the re-launch of Vatika and Amla brands helped. Brands in both the coconut and mustard hair oil segments fared well.
On the back of Vatika, which according to Nielsen, is the fastest growing shampoo brand in terms of volumes, shampoos have grown faster --at 31.5 per cent –than hair oils. The re-launch of the shampoo with a new brand ambassador helped increase visibility. The management says light hair oils and anti-dandruff shampoos will be the key growth areas.
Not much to smile about
Two-thirds of the revenues for the oral segment comes from toothpaste, which did well during the year. Tooth powder, however, was a laggard and its share in the overall portfolio has been on the decline in the last few years.
Last year too, tooth powder pulled down growth for the category. Dabur has a 10 per cent market share in the toothpaste space with brands such as Meswak, Dabur Red and Babool. Dabur Red and Meswak, both of which grew above 17 per cent, have grown faster than Babool though the recent revival in Babool’s growth rate–7.2 per cent in Q4 compared with 4.8 per cent in FY09– is encouraging. It appears toothpastes will dominate the oral category.
| SOARING SALES | |||
| (In Rs crore) | FY08 | FY09 | FY10E |
| Net sales | 2,361.10 | 2,805.40 | 3,332.73 |
| % growth y-o-y | 15.6 | 19.9 | 18.8 |
| EBITDA | 409.4 | 470.5 | 582.9 |
| EBITDA margin | 17.3 | 16.77 | 17.49 |
| Net profit* | 333 | 391.2 | 456.23 |
| % growth | 17.4 | 17.6 | 16.62 |
| EPS | 3.85 | 4.52 | 5.27 |
| P/E | 26.76 | 22.77 | 19.53 |
| E: analyst estimates * After exceptional items | |||
Building blocks
Health supplements grew in low single digits last year. While the growth in Chyawanprash wasn’t too exciting, the company increased market share by 180 basis points to 64.3 per cent. Products like honey and glucose remained popular and the management hopes to sell more of Chyawan Junior, a malted beverage this year.
Sprinters
Digestives, baby & skin care and foods have reported a remarkable improvement in Q4 with a 23-31 per cent growth compared with 12-14 per cent growth for the full year. Supply chain bottlenecks have been removed and the sales force reorganised –a separate sales force was created for the foods business.
Dabur expects the takeover of Femcare to be completed by June this year. Fem will be making a relatively small contribution to revenues and earnings should begin to trickle this year. The acquisition of Fem, strengthens the company’s position in the fast-growing skin care market. In addition to the Gulabari range, Dabur plans to launch an Ayurvedic skincare range too.
Retail – no joy yet
The foray into retail has resulted in losses of Rs 18 crore which should come down to Rs 10-12 crore this year. The company is de-risking themodel by following a revenue sharing model with developers –since the increase in footfalls in recent months hasn’t been meaningful.
It plans to go slow on expansion plans and will open 15 to 20 stores this year. The strategy of closing down unviable stores and re-scaling of store-sizes to about 1000 sq ft will help lower costs to some extent but the retail venture could continue to bleed till next year.
Global gains
Dabur’s international business, which brings in about a fifth of revenues, saw a 40 per cent plus growth last year, fueled by a a boom in oil-rich geographies. However, growth will now come increasingly from newer and underpenetrated geographies in North Africa, and Central and West Asia.
The management expects growth rates to moderate even though about Rs 30-40 crore of the capital expenditure of Rs 200-225 crore will be spent on the international business.
Rural play
Of course, its the rural markets back home that will remain Dabur’s biggest hunting ground. The share of rural revenues rose around 300 basis points y-o-y to 48 per cent last year driven by higher farm output.
Says Sunil Duggal, CEO, Dabur India, “Dabur has reported faster growth in rural India and we will continue to expand our rural footprint.”
With discretionary spends on low-end products still strong, analysts expect Dabur’s revenues to grow between 16-20 per cent in the current year.
Operating margins too should sustain at about 17.5 per cent while the net profit should grow at around 16-18 per cent. However, Dabur trades at over 20 times its estimated FY10 earnings which makes it rather expensive.
