31 January 2017
3QFY17 Results Update | Sector: Consumer
Dabur
Neutral
BSE SENSEX
27,656
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
8,561
DABUR IN
1,756.5
485.2 / 7.2
320 / 234
-4/-7/-1
412
32.0
CMP: INR276
TP: INR300 (+8%)
Domestic volumes disappoint; recovery likely to be gradual
3QFY17 consol. sales declined 6.1% YoY (est. of +2%) to INR18.5b.
EBITDA
declined 12.0% YoY to INR3.3b (est. of -6% to INR3.5b), while adj. PAT fell 7.5%
YoY to INR2.9b (est. of -5.1% to INR3.0b).
Sales of domestic FMCG business fell 6.8% YoY, led by volume decline
of 5.0%
(est. of +5%). With a 2.5% volume decline in the base quarter (3QFY16), we
were expecting positive volumes for 3QFY17 despite demonetization. Sales of
consumer care segment declined by 11.2% and those of international business
by 5.2% YoY. Management did point out that domestic sales declined 6.8% YoY
in primary terms, but grew 0.7% YoY in secondary terms.
Consol. EBITDA margin shrunk 120bp YoY to 17.8%,
led by gross margin
contraction of 310bp due to adverse category mix and increased input costs.
Ad spends were down 180bp to 9.6%, staff costs declined 10bp YoY to 10.2%
and other expenses were flat YoY at 11.6%.
Concall highlights:
a) DABUR witnessed double-digit sales growth in October.
November was bad. While December witnessed recovery, sales were still down
YoY. b) Management expects domestic margins to be stable going forward.
However, currency depreciation could affect international business margins.
Valuation and view:
While new launches in the science-based Ayurveda space,
potential recovery in rural consumption and recent investments in distribution
expansion should aid growth over medium term, we reduce our EPS for
FY18E/FY19E by around 2% due to delay in earnings growth. The stock is fairly
valued at 33.3x FY18E EPS. Maintain
Neutral
with a target price of INR300
(valued at 32x Dec-2018 EPS, 10% discount to three-year average P/E).
Financials & Valuations (INR b)
2016 2017E 2018E
Y/E Mar
77.6
78.0
86.6
Net Sales
15.0
14.8
16.6
EBITDA
12.5
12.8
14.6
NP
7.1
7.3
8.3
EPS (INR)
17.2
2.6
13.8
EPS Gr. (%)
23.6
28.0
32.9
BV/Sh. (INR)
33.3
28.3
27.3
RoE (%)
27.7
24.2
23.5
RoCE (%)
38.8
37.8
33.3
P/E (x)
11.7
9.9
8.4
P/BV (x)
Estimate change
TP change
Rating change
Krishnan Sambamoorthy
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Dabur
Key Quarterly Charts
Exhibit 1: Domestic FMCG business volumes decline 5% YoY% albeit on a lower base
12.3
9.5
9.0
Volume growth (%)
10.7
9.0
9.2
8.3
8.7
7.4
8.1
8.1
5.5
7.0
4.1
4.5
(2.5)
(5.0)
Source: Company, MOSL
Exhibit 2: Category wise performance
Category Growth (%)
Hair Care
Health Supplements
Oral Care
Foods
Digestives
Skin care
Home Care
OTC & Ethicals
IBD (organic)
3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
6.9
19.5
10.4
17.6
17.7
13.4
16.0
13.2
29.0
5.8
17.6
17.4
20.7
23.2
10.0
12.8
10.9
20.0
8.5
21.6
7.9
20.5
11.3
4.4
14.8
4.3
12.4
13.9
10.2
8.1
29.0
12.4
9.7
10.2
7.5
17.5
12.1
13.5
11.3
11.8
11.6
4.0
16.2
8.8
16.0
7.4
13.0
11.6
19.6
11.0
16.6
12.1
7.7
16.5
12.7
1.2
17.5
15.5
1.7
5.2
12.0
16.7
10.3
9.4
9.0
18.7
2.4
1.5
2.2
12.4
10.7
9.5
-0.6
-7.1
10.5
-23.6
-2.4
9.6
8.4
7.5
10.7
5.9
1.8
18.4
11.7
6.5
-2.2
19.3
7.0
15.7
-3.3
-1.1
11.6
4.3
-5.6
-3.2
2.2
-10.1
5.9
-4.6
-5.6
0.8
15.2
-3.4
6.6
19.9
-0.7
-2.3
-22.8
-14.4
-5.1
52.2
-10.7
-11.4
-5.2
-11.7
-6.2
Source: Company, MOSL
Key Takeaways from Concall
Demonetization impact and outlook
The company had witnessed double digit sales growth in October. November
was bad and while December has witnessed recovery sales are still down YoY.
The company allowed destocking of the channel of around INR 1b (10-12 days
sales). Now inventory is 22-25 days at the distributor level of which 15 is paid
and remaining is credit extended by Dabur. Usually the distributor pipeline for
Dabur is around 30-35 days. While its lost sales proportion is among the lowest
in the industry its distributor pipeline is higher than peers. Part of the reason
cited is large distance from its manufacturing facilities to the distributor.
Some winter centric brands were affected.
Wholesale are usually around 35% of sales. Eventually the management seeks to
bring this level down by 5% or 10% once the company increases its own direct
reach.
Management expects a relatively muted 4QFY17. Moreover while
demonetization effect may not be there in 1QFY18, pipeline for that quarter
may get affected by possible GST rollout in July.
12-15% topline growth will take time. It needs good monsoons and government
stimulus. Base case expectations are mid-single digits sales growth for the next 2
quarters.
Modern trade is 15% of domestic sales now.
31 January 2017
2
 Motilal Oswal Financial Services
Dabur
Additional Product/Segment highlights
Chyawanprash witnessed 300 bp market share decline YoY but sales growth was
double digits YoY.
In Honey commodity costs soft, could even see more intense competition going
forward.
Babool had a weaker performance as the brand is rural. Toothpowder sales
were also muted. Meswak and Dabur Red are doing well.
Herbal category is 20% of oral care sales.
Management believes Patanjali sales could be close to plateauing in categories
like oral care and honey
Ethicals business is the fastest growing in their portfolio.
Amla oils reach is around 2 m outlets.
Juices market share is now 57%. It had dipped last year to around 50% when
they had supply chain issues but market share has been recouped to earlier
levels.
Management believes that Amla oils portfolio sales should soon be close to INR
10b. Chyawanprash range got get to those levels as well in 2-3 years. But this
category needs innovation and brand extensions. They believe that honey too is
a potential INR 10 b product for them. Currently the category sales itself is
around INR 7 b with Dabur having 51% market share (was 56% earlier before
Patanjali entered). Patanjali now has 25-30% share in honey. Dabur’s price cuts
and promotions in honey are aimed to gain back the market share.
Financials
Adverse category mix, high consumer promotion and input cost increases
affected gross margins. Input cost uptick is overall benign. Beverage business
which grew rapidly off a low base has lower gross margins. Excluding mix effect
gross margins would have declined around 100bp YoY instead of 310bp decline
YoY.
The company is in the process of reducing promotion efforts in most categories
except in categories like honey. On the other hand they expect Advertising to
increase sharply on a sequential basis in 4QFY17 as they put the earlier
promotion spends into advertising.
Management expects domestic margins to be stable going forward. However
currency depreciation could affect international business margins.
International business could recover from 3QFY18 onwards.
There may be some flattening of currency pressure in the international business
going forward. Local currency sales in these regions are healthy.
Management is satisfied with 18-20% EBITDA margins domestically.
Receivables and inventory actually saw a decline during the quarter.
New launches
The company has launched gel version of Red toothpaste.
There has been a delay in rollout of science based Ayurveda products but
management hope to roll the first ones out soon.
Healthcare would be largely Ayurveda based going forward as well. Personal
care will be a mix of herbal and non-herbal.
31 January 2017
3
 Motilal Oswal Financial Services
Dabur
Valuation and view
While new launches in the science based Ayurveda space, potential recovery in
rural consumption and recent investments behind distribution expansion should
aid growth the medium term, we have reduced our EPS forecasts for FY18 and
FY19 by around 2% each due to delay in earnings growth.
Stock is fairly valued at 33.3x FY18E EPS. Maintain NEUTRAL with target price of
INR300 (valued at 32x December’2018 EPS, 10% discount to 3 year average P/E).
Exhibit 3:
Dabur P/E (x)
48.0
40.0
32.0
24.0
16.0
8.0
15.2
27.9
33.4
PE (x)
Peak(x)
Avg(x)
41.1
Min(x)
Exhibit 4:
Dabur P/E premium vs. Sensex
170
120
70
20
-30
Dabur PE Relative to Sensex PE (%)
LPA (%)
105.7
63.9
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Valuation Matrix of coverage universe
Company
Reco
Price
(INR)
971
3,127
887
276
1,035
1,581
5,156
855
258
349
257
5,842
14,462
266
674
6,920
113
797
2,177
877
290
363
Mkt Cap
(USD M)
13,728
5,530
3,557
7,174
3,464
7,936
3,196
27,274
45,919
932
4,891
8,304
2,378
330
5,093
3,311
220
3,107
4,665
850
351
4,748
EPS Growth YoY (%)
FY16 FY17E FY18E
26.3
46.3
10.4
17.2
17.7
24.4
20.4
12.9
-3.5
-41.7
26.1
-7.3
18.7
-66.7
47.3
22.0
3.9
12.8
LP
-11.7
19.3
-13.4
8.1
0.8
-4.4
2.6
-2.9
11.0
-5.6
1.1
8.6
84.7
6.4
-7.0
18.6
4.6
10.9
6.6
-23.5
11.2
71.2
-28.1
-47.7
8.9
13.3
16.3
18.9
13.8
22.0
16.2
13.4
11.7
13.5
18.6
21.1
24.8
26.4
37.7
12.2
22.0
33.8
32.6
64.1
72.3
201.0
11.5
FY16
51.8
44.6
39.1
38.8
41.1
47.6
30.9
44.9
33.5
85.3
45.9
48.7
69.3
39.5
45.7
53.3
16.3
71.9
130.2
58.6
49.7
45.2
P/E (x)
FY17E FY18E
48.0
44.3
40.9
37.8
42.3
42.9
32.7
44.4
30.8
46.2
43.1
52.4
58.5
37.8
41.2
50.0
21.3
64.6
76.0
81.5
95.1
41.5
42.3
38.1
34.4
33.3
34.7
36.9
28.8
39.8
27.1
38.9
35.6
42.0
46.3
27.5
36.7
41.0
15.9
48.7
46.3
47.3
31.6
37.2
EV/EBITDA (x)
FY16 FY17E FY18E
32.8
31.9
25.2
31.1
35.2
35.3
20.1
31.3
21.3
30.5
31.5
34.2
42.9
15.2
27.8
35.3
11.2
31.7
40.6
21.4
12.0
37.3
30.3
31.8
24.8
31.0
31.1
31.7
22.5
30.7
20.2
25.7
29.7
31.0
38.2
16.1
27.0
32.4
12.2
30.9
36.4
23.1
17.8
30.8
27.2
26.9
20.6
27.3
27.0
28.0
19.5
27.8
17.5
22.7
24.6
24.6
29.4
12.9
23.8
25.8
11.0
24.7
27.1
16.3
10.5
27.6
RoE (%)
FY16
34.7
55.9
68.9
33.3
43.4
23.4
30.8
82.4
29.3
9.1
36.9
40.9
46.0
19.5
29.9
30.8
10.3
14.8
19.8
13.4
6.3
21.3
Div.
FY16
0.9
0.6
1.2
0.7
0.8
0.6
1.1
1.9
2.6
1.1
1.3
0.8
0.6
0.0
0.6
0.5
0.7
0.1
0.0
0.3
0.0
0.7
Consumer
Asian Paints Neutral
Britannia
Buy
Colgate
Buy
Dabur
Neutral
Emami
Buy
Godrej
Neutral
GSK
Neutral
HUL
Neutral
ITC
Buy
Jyothy Labs Neutral
Marico
Buy
Nestle
Neutral
Page
Buy
Parag Milk Neutral
Pidilite Inds. Buy
P&G Hygiene Buy
Radico
Neutral
United Brew. Buy
United Spirits Buy
Retail
Jubilant
Neutral
Shopper's
Neutral
Titan
Neutral
Note: For Nestle FY16 means CY15
Source: Company, MOSL
31 January 2017
4
 Motilal Oswal Financial Services
Dabur
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Income - Recurring
Profit before Taxes
Change (%)
Margin (%)
Tax
Tax Rate (%)
Profit after Taxes
Change (%)
Margin (%)
Minority Interest
Adjusted PAT
Reported PAT
2011
40,774
20.3
33,038
7,736
22.0
19.0
952
291
586
7,079
16.8
17.4
1,330
19.6
5,689
12.6
14.0
3
5,686
5,686
2012
52,836
29.6
44,153
8,683
12.2
16.4
1,032
538
792
7,905
11.7
15.0
1,383
18.5
6,441
13.2
12.2
-8
6,449
6,449
2013
61,467
16.3
51,813
9,653
11.2
15.7
847
589
1,313
9,530
20.6
15.5
1,738
19.2
7,704
19.6
12.5
24
7,680
7,634
2014
70,543
14.8
59,155
11,388
18.0
16.1
975
542
1,491
11,363
19.2
16.1
2,105
19.3
9,172
19.1
13.0
25
9,146
9,139
2015
78,065
10.7
65,108
12,957
13.8
16.6
1,150
401
1,788
13,194
16.1
16.9
2,347
19.0
10,685
16.5
13.7
26
10,658
10,658
2016
77,616
-0.6
62,614
15,002
15.8
19.3
1,332
485
2,352
15,538
17.8
20.0
2,821
19.3
12,539
17.4
16.2
27
12,512
12,512
2017E
77,965
0.4
63,121
14,844
-1.1
19.0
1,411
566
3,176
16,043
3.2
20.6
3,080
19.8
12,866
2.6
16.5
27
12,839
12,839
(INR Million)
2018E
86,646
11.1
70,023
16,623
12.0
19.2
1,539
572
3,747
18,259
13.8
21.1
3,506
19.8
14,644
13.8
16.9
30
14,614
14,614
2019E
98,784
14.0
79,631
19,152
15.2
19.4
1,590
523
4,309
21,349
16.9
21.6
4,099
19.8
17,122
16.9
17.3
35
17,087
17,087
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Loans
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
Current
Non-current
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Current Libilities
Provisions
Net Current Assets
Deferred Tax Liability
Application of Funds
E: MOSL Estimates
2011
1,741
12,170
13,911
41
16,280
30,232
19,338
-4,351
14,987
324
4,197
4,178
18
19,768
7,085
3,555
2,805
6,324
8,855
7,394
1,461
10,913
-189
30,231
2012
1,742
15,430
17,172
30
11,172
28,375
21,445
-5,033
16,412
268
4,825
4,812
13
20,498
8,239
4,617
4,184
3,458
13,355
9,361
3,994
7,143
-274
28,374
2013
1,743
19,209
20,952
121
12,577
33,649
21,330
-5,511
15,819
926
9,286
9,273
13
21,055
8,444
4,841
3,618
4,151
13,074
10,431
2,643
7,981
-362
33,649
2014
1,744
24,816
26,560
159
9,511
36,230
24,128
-6,459
17,669
217
10,765
10,751
13
24,469
9,725
6,753
5,194
2,797
16,442
13,330
3,112
8,027
-448
36,230
2015
1,757
31,785
33,541
182
9,608
43,331
25,409
-6,638
18,771
503
18,134
18,120
13
23,655
9,733
7,108
2,760
4,053
17,144
14,122
3,022
6,511
-587
43,331
2016
1,759
39,842
41,601
217
8,043
49,860
27,802
-8,304
19,499
448
25,239
25,225
13
26,020
10,965
8,097
2,204
4,754
20,579
16,739
3,841
5,440
-765
49,860
2017E
1,759
47,423
49,182
244
10,815
60,241
29,802
-9,715
20,087
448
27,764
27,748
16
33,997
12,085
8,425
8,193
5,293
21,290
17,408
3,882
12,707
-765
60,240
(INR Million)
2018E
1,759
56,052
57,812
274
10,000
68,086
30,802
-11,254
19,548
448
30,542
30,522
19
40,341
13,069
9,102
12,262
5,908
22,027
17,680
4,348
18,313
-765
68,086
2019E
1,759
66,142
67,901
309
9,000
77,211
31,802
-12,844
18,958
448
33,598
33,575
23
50,112
14,899
10,377
18,229
6,607
25,140
20,156
4,984
24,972
-765
77,210
31 January 2017
5
 Motilal Oswal Financial Services
Dabur
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
3.3
3.8
8.0
1.1
34.3
2012
3.7
4.3
9.9
1.2
32.3
2013
4.4
4.9
12.0
1.4
31.7
2014
5.2
5.8
15.2
1.6
30.5
2015
6.1
6.7
19.1
2.2
37.0
2016
7.1
7.9
23.6
2.0
28.0
2017E
7.3
6.5
28.0
2.6
35.0
2018E
8.3
7.4
32.9
2.9
35.0
2019E
9.7
8.8
38.6
3.4
35.0
74.6
64.3
9.1
55.7
28.0
0.4
62.7
56.8
7.8
49.8
23.0
0.5
52.7
47.6
6.7
41.7
18.1
0.6
45.5
41.1
6.1
36.6
14.5
0.8
38.8
35.1
6.0
31.1
11.7
0.7
37.8
42.5
5.9
31.0
9.9
0.9
33.3
37.2
5.2
27.3
8.4
1.1
28.4
31.4
4.5
23.1
7.2
1.2
48.9
28.6
37.3
32
1.3
41.5
23.5
29.7
32
1.9
40.3
26.4
36.6
29
1.8
38.5
27.5
42.2
35
1.9
35.5
27.7
45.5
33
1.8
33.3
27.7
50.3
38
1.6
28.3
24.2
47.0
39
1.3
27.3
23.5
49.7
38
1.3
27.2
24.1
56.6
38
1.3
1.2
0.7
0.6
0.4
0.3
0.2
0.2
0.2
0.1
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Int./Div. Received
Depreciation & Amort.
Interest Paid
Direct Taxes Paid
(Incr)/Decr in WC
CF from Oper.
Extraordinary Items
(Incr)/Decr in FA
Free Cash Flow
(Pur)/Sale of Invt.
CF from Invest.
Issue of Shares
(Incr)/Decr in Debt
Dividend Paid
Others
CF from Fin. Act.
Incr/Decr of Cash
Add: Opening Bal.
Closing Balance
E: MOSL Estimates
2011
7,079
-586
952
291
-1,330
-8,176
-1,770
0
-9,503
-11,273
-1,556
-11,059
0
14,487
-1,952
1,175
13,709
881
1,923
2,804
2012
7,905
-792
1,032
538
-1,383
5,150
12,450
0
-2,052
10,398
-629
-2,680
0
-5,107
-2,086
-1,197
-8,390
1,380
2,805
4,184
2013
9,530
-1,313
847
589
-1,738
-1,403
6,512
0
-542
5,969
-4,461
-5,003
1
1,404
-2,434
-1,045
-2,074
-566
4,184
3,618
2014
11,363
-1,491
975
542
-2,105
1,529
10,812
0
-2,090
8,723
-1,479
-3,568
2
-3,065
-2,788
183
-5,668
1,576
3,618
5,194
2015
13,194
-1,788
1,150
401
-2,347
-917
9,694
0
-1,567
8,127
-7,369
-8,936
2
97
-3,948
658
-3,191
-2,433
5,194
2,761
2016
15,538
-2,352
1,332
485
-2,821
514
12,696
0
-2,338
10,357
-7,105
-9,443
2
-1,566
-3,506
1,261
-3,809
-557
2,760
2,204
2017E
16,043
-3,176
1,411
566
-3,080
-1,277
10,487
0
-2,000
8,487
-2,525
-4,525
2
2,772
-4,494
1,747
27
5,989
2,204
8,193
(INR Million)
2018E
18,259
-3,747
1,539
572
-3,506
-1,539
11,579
0
-1,000
10,579
-2,778
-3,778
2
-815
-5,115
2,195
-3,732
4,069
8,193
12,262
2019E
21,349
-4,309
1,590
523
-4,099
-691
14,362
0
-1,000
13,362
-3,056
-4,056
2
-1,000
-5,980
2,640
-4,338
5,968
12,262
18,229
31 January 2017
6
 Motilal Oswal Financial Services
Dabur
Corporate profile
Company description
Dabur India is the second largest FMCG company in
India, in terms of Product portfolio. Dabur is a
market leader in Chyawanprash category and is
increasing its presence in other traditional categories
like Hair Care, oral care, household care and foods.
Dabur's acquisition of Fem Care given it a strategic
presence in the high potential skin care segment.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Dec-16
68.0
5.6
19.8
6.5
Sep-16
68.0
5.6
19.8
6.6
Dec-15
68.1
4.7
20.4
6.8
Exhibit 3: Top holders
Holder Name
Life Insurance Corporation Of India Limited
Matthews Pacific Tiger Fund
Barclays Merchant Bank (Singapore) Ltd.
National Westminster Bank Plc
% Holding
3.3
1.2
1.2
1.1
Source: Capitaline
Note: FII Includes depository receipts
Source: Capitaline
Exhibit 4: Top management
Name
Anand Burman
Amit Burman
Sunil Duggal
A K Jain
Designation
Chairman
Vice Chairman
Executive Director
Company Secretary
Exhibit 5: Directors
Name
Ajay Dua*
P N Vijay*
S Narayan*
Sanjay K Bhattacharrya*
Falguni Nayar*
Name
Mohit Burman
R C Bhargava*
Saket Burman
P D Narang
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
G Basu & Co
Price Waterhouse & Co
Ramanath Iyer & Co
Type
Statutory
Internal
Cost Auditor
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
7.3
8.3
9.7
Consensus
forecast
7.6
8.6
9.9
Variation (%)
-3.9
-3.9
-1.8
Source: Bloomberg
Source: Capitaline
31 January 2017
7
 Motilal Oswal Financial Services
DABUR INDIA REPORT GALLERY
DABUR REPORT GALLERY
Our recent reports on Dabur
Our recent reports on Consumer sector
Our recent reports on other Consumer companies
 Motilal Oswal Financial Services
Dabur
NOTES
31 January 2017
9
 Motilal Oswal Financial Services
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10