Published on 6/05/2019 9:45:09 AM | Source: Prabhudas Lilladher Ltd

Hold Dabur India Ltd For The Target Rs.430 - Prabhudas Lilladher


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5.6-7% EPS cut on tepid outlook

We cut our EPS estimates of FY20 and FY21 by 5.6% and 7% respectively given 1) slowdown in demand as 4Q domestic volumes grew by 4.3% 2) Management’s toning down of volume growth guidance for FY20 to high single digit 3) flattish margin trajectory going ahead with the view to invest behind brand building and strengthening the 8 power brands and 4) muted IBD growth on continued challenges and currency volatility. Dabur expects input cost inflation of 2-3% to be mitigated by commensurate price increases thereby maintaining margins at the current level. We estimate 11.2% sales and 14.5% PAT CAGR over FY19-21 and value the stock at 39xFY21 EPS to arrive at target price of Rs430. Retain “Hold”.


Consolidated sales grew by 4.7% led by 4.3% volume growth.

Domestic FMCG revenues up 5.9% led by 4.3% volume growth. Net Sales increased 4.7% at Rs 21.28bn. Gross Margins declined 90bps. EBITDA decreased by 5.8% to Rs 4.57bn. Margins declined 240bps to 21.5% as staff costs and other expenses increased by 250bps and 60bps respectively despite decline in ad-spends by 160bps. Adj. PAT increased 12.5% to Rs 4.47bn led by decline in tax rates by 17.1% and decrease in interest cost by 6.3% despite increase in depreciation by 8.5% and decline in other income by 9.8%. Exceptional item of Rs753mn represents charge on goodwill impairment in Turkish Subsidiary M/s Hobi Kozmetic, in view of currency devaluation. Dabur launched Odonil smile and relaunched Vatika shampoo, Brahmi Amla and oil and Sarson Amla oil in 4Q19.


Concall Highlights:

1) 4Q19 Rural sales grew by 7.8%, faster than Urban sales growth of 7%. Rural will continue growing faster though the gap has narrowed from 30% to 10% 2) Slowdown in demand due to agrarian distress, liquidity crunch and prolonged winter impacted Hair Care and Foods portfolios; Domestic FMCG growth excluding foods was 8.5% 3) IBD was impacted by underperformance in MENA region and currency devaluation in key markets of Turkey, Pakistan and Nigeria. Though challenges remain, growth in IBD would be led by innovations and new launches. 4) FY20 will witness higher Innovations and launches in the premium segment. These would be introduced in the E-commerce and Modern Trade to reduce dependence on wholesale channel. 5) Direct reach has increased to 1.1mn outlets and 46000 villages; Dabur targets to increase it to 1.2mn outlets and 51000 villages by FY20 5) Market share in Home care and Skin care has declined. Home care industry grew by ~20% v/s Dabur’s Home care growth of 16% 6) Red toothpaste grew by 17.5% in 4Q and Meswak grew in low single digit. Babool toothpaste is set for relaunch in 1Q20 7) In honey, Dabur expects more than 20% growth in FY20 backed by success of Sqeezy pack and improved demand. 8) Dabur is reducing inventory days at stockiest level post corrections in inventory at depot level. 9) Competition in Oral care and Health care has declined. However, Dabur faces heightened competition in Home care from the leader and Skin care and Honey from regional players 10) ESOPs charge for FY20 would be ~Rs 770mn (Rs35mn and Rs774mn in FY18 and FY19 respectively) 11) tax rate would remain at the MAT rate of ~22%, one-time tax reversal reduced tax in 4Q19


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