Dabur India's Q3FY19 results (Outperformer) - Multiple drivers of volume growth outperformance
Q3FY19 result highlights
- Consolidated revenues were up 11.8% yoy at Rs 22bn (est: Rs21.7bn), EBITDA was up 10.4% yoy at Rs4.45bn(est: Rs4.45bn) and PAT was up 10.3% yoy at Rs 3.7bn (est Rs3.6bn).
- Domestic FMCG grew by 15.2% yoy with a volume growth of 12.4% yoy
- Consolidated gross margins decreased 230bp impacted by higher input costs and higher trade promotions & adverse currency in international business. Staff cost was up by 16% yoy. Other expenses grew by 1.1% yoy. Advertising spends decreased by 4% yoy largely on account of lower media spends. Resultant EBITDA margin declined of 30bps yoy.
- In terms of segmental performance, Healthcare sales increased by 15.9% yoy. HPC posted growth of 16.3% yoy. Foods sales increased by 11.1% yoy.
- International Business sales increased by 3.4% with constant currency growth of 1% yoy. Egypt sales declined by 10% yoy in cc terms impacted by hyperinflation and liquidity issues. GCC markets declined by 12% yoy due to consumption pressure and sharp decline in categories.
Key positives: Strong domestic volume growth.
Key negatives: Weak International business performance
Impact on financials: No material change in earnings
Valuations & view
Dabur reported a healthy performance led by better than expected domestic volume growth partially offset by muted international business performance. With strong growth across all the core domestic segments, uptick in rural demand given government’s rural push prior to election coupled with its own internal initiatives, we expect double-digit growth in domestic FMCG business to continue. While challenges in international business are likely to remain for the near term, we believe, as macro & currency movement stabilises in key markets coupled with a low base, the international profitability can see a recovery in 2HFY20E. Given the volume outperformance and better earnings visibility (18% earnings CAGR over FY19-21E), we believe Dabur deserves premium to other mid-cap HPC peers. Maintain Outperformer rating on the stock.
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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