Dabur India's Q2FY18 results (Upgrade to Outperformer) - Back on the growth track!
Q2FY18 result highlights
- Consolidated revenues declined 1.1% yoy at Rs19.6bn(est: Rs19.58bn), EBITDA increased by 2.7% yoy at Rs4.2bn(est: Rs3.9bn) and PAT was up by 1.3% yoy at Rs3.6bn (est Rs3.44bn).
- Comparable consolidated revenues increased by 8% yoy. Comparable domestic revenues increased by ~10% yoy with a volume growth of 7.2% yoy.
- Domestic growth was led by Oral care and Skin care which grew by 22.8% and 15.8% yoy respectively while OTC, hair oil and health supplement sales increased by 2.2%, 2.3% and 3% yoy. Shampoo sales declined 15% yoy.
- Gross margins declined 110bps yoy impacted by higher input costs. Staff cost & other expenses declined by 5.6% yoy and 11.6% yoy respectively. Advertising spends were down by 2.5% yoy. Resultant EBITDA margins increased by 80bp yoy at 21.4%.
- PAT increased by 1.3% yoy. Excluding the one-off impact on account of GST transition (Rs100m) and currency translation (Rs130m), the comparable PAT grew by 7.2% yoy.
- International business sales declined by 11.7% yoy (3.9% yoy growth in constant currency terms) impacted by currency devaluation in Egyptian pound, Naira and Lira.
Key positives: Strong recovery in domestic business
Key negatives: Currency led weakness in international business
Impact on financials: Our earnings estimate remains largely unchanged.
Valuations & view
Dabur has, over the last 2 years, lagged peers in driving volume growth and improving pricing. However, the initial turnaround signs are encouraging and we believe that factors such as a positive rural outlook (45% sales from rural India), stable to improving market shares across categories and rising innovation agenda are key positives that provide a greater visibility to Dabur’s domestic volume growth trajectory. Further, with receding impact of currency headwinds, the organic growth of the international business will come to the fore and further improve revenue visibility. We believe an improved visibility of growth will drive a re-rate in the stock; we upgrade Dabur to Outperformer with a revised target price of Rs366.
Dabur India is engaged in manufacturing, marketing and distributing consumer goods and its related products. Co.'s products include hair care, oral care, health supplements, digestives and candies, baby and skin care, fruit juices, cooking pastes and sauces. Co.'s brand names include Dabur, Asavs, Classicals, Dabur Shilajit, Naturecare, Shankhpushpi, Honitus and Ring Ring. Co. operates three business divisions: Consumer Care Division, Consumer Healthcare Division and the wholly owned subsidiary, Dabur Foods Limited.
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