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MOSL: DABUR INDIA (Neutral)-Strong overall performance leads to earnings surprise-Fair valuations cap upside

dABUR iNDIA: Strong overall performance leads to earnings surprise; Fair valuations cap upside

(DABUR IN, Mkt Cap USD11.2b, CMP INR452, TP INR455, 1% Upside, Neutral)

 

• Dabur’s 3QFY19 consolidated sales grew 11.8% YoY to INR22b (our est. INR21.2b). EBITDA grew 10.4% YoY to INR4.5b (our est. INR4b). Adj. PAT increased 10.2% YoY to INR3.7b (our est. INR3.2b). Domestic FMCG (72% of revenues) sales grew 15.2% YoY, led by underlying volume growth of 12.4% YoY (our est. 7%).
• 9MFY19 performance: Sales, EBITDA and Adj. PAT grew 12.1%, 13.3% and 10.4%, respectively. EBITDA margin expanded 20bp YoY to 20%.
• Concall highlights: (1) Management believes the budget will be positive for consumption. (2) Management expects gross margins to recover in 4QFY19 on a standalone basis, but subsidiary’s gross margins could come under pressure because of promotions in the international business.
• Valuation and View: We have raised our FY19 EPS by 5%, but have maintained our EPS forecasts for FY20 and FY21. The company has recovered well in FY19 from a combination of issues pertaining to the preceding two years — (a) a base of weak rural wholesale channel sales (Dabur had the highest exposure among peers), and (b) market share loss to Patanjali on which Dabur took requisite corrective actions. Nevertheless, FY19 is likely to be the third successive year of single-digit EPS growth. Challenges remain in the form of a large and underperforming international business (30% of sales in FY18) and an unwieldy domestic portfolio of brands, most that  are yet to demonstrate sustainable growth.