Dabur India's Q3FY18 results (Outperformer) - Visible improvement in growth trajectory!

Q3FY18 result highlights

• Consolidated revenues increased 6.1% yoy at Rs19.6 bn, EBITDA increased 20.8% yoy at Rs4bn and PAT was up by 13% yoy at Rs3.3bn.
• Comparable consolidated revenues increased by 12.9% yoy. Comparable domestic revenues increased by ~17.7% yoy with a volume growth of 13% yoy.
• Gross margins were up 220bps yoy aided by favourable mix. Staff cost & other expenses increased by 8% yoy and 3% yoy respectively. Advertising spends were up by 4.6% yoy. Resultant EBITDA margins increased by 250bp yoy at 20.5% (standalone margins up 240bps).
• Other income declined by 20% yoy and depreciation was up 22% resulting in PAT growth being lower at 13%.
• International business sales declined by 6.7% yoy (5% yoy growth in constant currency terms) impacted by currency devaluation in Egyptian pound, Naira and Lira.

Key positives: Strong volume growth and margins in India.

Key negatives:  Flat sales growth in foods

Impact on financials: Factoring lower other income, we have reduced FY18/19E earnings by 2%/1% respectively.

Valuations & view

Initial signs of a business recovery were visible in Q2FY18; Dabur has backed it up in Q3Fy18 with continued improvement in volume growth and profitability. In the India business, we expect the benefits of higher rural spends, Dabur’s own rural focus, increased pace of innovation and focus on market share improvement in existing categories to drive a sustained high single digit volume growth. Further, with inputs being diversified relatively for Dabur, impact of higher crude oil prices will be lower for the company. On the international front, we expect a continued revenue recovery as well as improvement in margins to drive strong profit growth in FY19. We believe Dabur’s growth outlook is getting stronger each quarter; Dabur remains one of our top picks in the FMCG space. Maintain Outperformer.