29 October 2012
2QFY13 Results Update | Sector: Consumer
Dabur India
BSE SENSEX
18,625
Bloomberg
Equity Shares (m)
52-Week Range (Rs)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
S&P CNX
5,664
CMP: INR130
TP: INR135
Neutral
DABUR IN
1,740.7
139/92
5/10/25
225.9
4.2
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Dabur's 2QFY13 results were mixed, with consolidated sales exceeding our estimates and Adj PAT at INR2.02b,
though up 16% YoY, missed our estimate of INR2.12b by 5%. Performance in cash cow hair oils and oral care
segments continues to remain modest. Company is seeing the benefits of recent rural distribution expansion
in 10 states.
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Consolidated sales growth at 20.6% was above estimate led by better-than-expected volume growth of 10.5%.
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Consolidated gross margin expanded 110bp to 50.6% on the back of easing input costs and price hikes. EBITDA
margin declined 180bp to 14.1% due to higher ad expenses (up 180bp). While EBITDA grew a modest 9.3% to
INR2.6b (est INR2.8b), the 13.5% decline in interest cost and 61% jump in other income, coupled with a lower
tax rate (down 120bp), resulted in 16.4% PAT growth to INR2.02b (est INR2.12b).

Standalone domestic FMCG sales posted a healthy 15% growth due to 9% volume uptick, driven by shampoo,
foods, skin care and home care segments. Oral and hair segments underperformed.
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International division posted a strong 25% revenue growth led by INR depreciation (constant currency organic
growth at 16%). GCC and Nigeria outperformed with 21% and 20% growth, respectively.

We believe Dabur's distribution expansion can provide staggered volume benefits in 2HFY13 and FY14.
Sustained brand investments, post 2HFY12, aided in good volume growth momentum for the company.
However, continued underperformance in hair oil and oral care remains a concern. We maintain FY13 and FY14
estimates and assume PAT CAGR of 20% for FY12-14. The stock trades at 29.5x FY13E and 24x FY14E EPS. We
value Dabur at 25x FY14 EPS and arrive at a one-year forward target price of INR135, a potential upside of 5%.
Maintain Neutral. Increase in input costs constitutes the key risk.
Gautam Duggad (Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P V S (Sreekanth.P@MotilalOswal.com); +9122 3029 5120
Investors are advised to refer through disclosures made at the end of the Research Report.
1
Dabur India
Dabur 2QFY13 conference call highlights
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29 October 2012
Volume growth in domestic business - 9%, Demand scenario - marginal
moderation in demand across urban as well as rural.
Volume guidance - 8-12%. Cautious due to high input cost - will lead to price
hikes. Targeting 10% volume growth in domestic business.
Domestic FMCG business grew 15% - but commodity exports went up significantly
- hence stand-alone sales growth is higher at 18.6%
Gross margin guidance - dramatic increase in MENA. But India input cost trend
has been mix. Don't see more than 100bp gross margin expansion ahead.
Rural growing ahead of Urban. Rural growing at 20% vs. 10% in Urban (included
CSD). Excluding CSD, Urban growth is 13%.
Gross margins has gone up by ~400bp in Rural. It used to be 41-42% couple of
years back and now stood at 45-46%.
Focus on Oral Care has shifted to profitability. Babool - 50% of Oral Care portfolio
- impacted by price hike. Should be able to get Babool on track by year end both
in terms of margins and growth.
Red toothpowder - marginal decline. Has seen steady erosion of margins due to
high input costs.
Skin Care - substantial mkt share gains in Bleach segment. Largely volume driven
growth in segment (~20% volume growth out of 25% revenue growth).
Significantly higher growth in Rural but Urban still forms big chunk of Skin Care.
Perfumed Hair Oil - posted 16.3% growth. Amla Hair Oil - double digit growth.
CSD - Worst is behind. 2Q saw a decline of 17%. Should get back to flat growth in
FY13 after seeing de-growth in 1H.
400bp expansion in gross margins in international division - driven by favorable
material cost environment.
High base and mismatch of festive season - impacted Foods growth. Foods
margins impacted by currency depreciation.
Ad-spends - will be slightly higher going ahead. Domestic ad-spends should be
significantly higher going ahead.
Higher other expenses - up 30% - driven by increase in overheads due to
distribution expansion initiative.
Capex for FY13- INR 1.75-2 Bn.
2
Dabur India
Consolidated, standalone domestic volumes up 10.5% and 9% respectively;
con EBITDA margin down 180bp despite 110bp increase in gross margin
Consolidated sales grew 20.6%, with volumes up 10.5%. This is the third consecutive
quarter of double digit volume growth. Dabur's strategy of expanding the rural
distribution footprint in identified 10 key states is helping the volume momentum,
in our view. Management is targeting 10% volume growth for FY13.
 Consolidated gross margin expanded 110bp to 50.6% on the back of easing input
costs and price hikes. Management expects gross margin to expand ~100bp in
2HFY13.
 Consolidated EBITDA margin declined 180bp to 14.1% due to higher ad expenses
(up180bp). While EBITDA grew a modest 9.3% to INR2.6b (est INR2.8b), the 13.5%
decline in interest cost and 61% jump in other income, coupled with a lower tax
rate (down 120bp) resulted in 16.4% PAT growth of INR2.02b (est INR2.12b).
 Standalone sales growth was 15% at INR10.4b, with volumes up 9%. Gross margin
expanded 30bp to 46.9%, while EBITDA margin declined 150bp YoY to 18.8% due to
a 165bp increase in ad spend; EBITDA grew 10.1%. Despite the steep increase in
interest cost from INR14m to INR90m, a 60% growth in other income enabled the
Adj PAT growth of 11.8% at INR1.55b.

Con sales up 20.6% driven by 25% growth in international business… …consol volumes grew 10.5%
Gross margin up 110bp but EBITDA margin declines 180bp
Source: Company, MOSL
29 October 2012
3
Dabur India
Domestic business: home care, skin and foods shine; oral and hair care
underperform
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Hair oils posted 9.1% growth led by double digit growth in Amla hair oil, 16.3%
growth in perfumed hair oils, while Vatika reported a modest growth.
Shampoos posted 40.2% growth on a low base. Vatika shampoo performed well
and Vatika Premium Naturals was relaunched with new packaging.
Oral care posts sub-par 6.5% growth: Toothpastes grew 10.2%, with Meswak and
Dabur Red performing well, while Babool sales continue to remain under pressure
due to recent pricing action. Dabur is focusing more on Babool margins and plans
to introduce value-added products for the brand.
Skin care growth was robust at 24.8%, with Fem growing at 27.7% led by bleaches
and double digit growth from Gulabari.
Home care posted 23% growth led by Odomos and Sanifresh.
Foods segment grew 18.1%, largely volume led with Real performing well for the
company.
OTC and ethicals grew 22.6%, while Digestive grew 11.9%, health supplements
grew 15.7% during 2QFY13.
Company has been aggressively investing in brands and we expect it would
continue to gain market share. However, we believe aggressive ad spends shall
keep profit margins under check.
CCD margin expands; foods contract due to INR depreciation
Y/E March
Net Sales (INR m)
Consumer Care
Foods
Retail
Others
EBIT (INR m)
Consumer Care
Foods
Retail
Others
EBIT Margin %
Consumer Care
Foods
Retail
Others
2QFY13
15,226
12,638
1,758
141
690
3,284
2,897
334
(30)
84
21.6
22.9
19.0
(21.3)
12.2
2QFY12
12,623
10,666
1,483
94.8
380
2,734
2,401
333
(27)
28
21.7
22.5
22.5
(28.9)
7.3
% Chg
20.6
18.5
18.5
48.8
81.7
20.1
20.7
0.2
9.5
202.5
-0.1
0.4
-3.5
7.6
4.9
Source: Company, MOSL
IBD and Foods record impressive growth
Category Growth (%)
Hair Care
Health Supplements
Oral Care
Foods
Digestives
Skin care
Home Care
IBD (organic)
29 October 2012
1QFY12
9.0
0.0
12.7
31.5
7.8
16.3
24.9
12.5
2QFY12
15.9
7.8
6.0
27.5
3.8
0.0
0.5
22.8
3QFY12
19.6
13.5
11.6
17.4
19.3
4.9
18.0
37.8
4QFY12
19.8
10.9
7.7
30.4
19.4
17.6
18.0
45.8
1QFY13
2QFY13
10.4
13.2
18.0
15.7
8.1
7.0
34.5
18.1
9.8
11.9
13.3
24.8
14.4
23.0
24.0
24.8
Source: Company, MOSL
4
Dabur India
International business: GCC, Nigeria outperform
International business' organic sales grew 24.8%. Growth was largely led by GCC
(21% in constant currency), Egypt (16%) and Nigeria (20%).
 Namaste sales for the quarter were under pressure as the company is realigning
its distribution in Africa and branding in the US.
 Hobi reported healthy growth in domestic and international markets as it is
expanding distribution and investing in brands.
 Gross margin expanded by 400bp due to favorable material cost environment.
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Valuation and view: distribution expansion to provide staggered volume
benefits; maintain estimates and Neutral rating
We believe Dabur's distribution expansion can provide staggered volume benefits in
2HFY13 and FY14. Sustained brand investments, post 2HFY12, aided in good volume
growth momentum for the company. However, continued underperformance in hair
oil and oral care remains a concern. We maintain FY13 and FY14 estimates and assume
PAT CAGR of 20% for FY12-14. The stock trades at 29.5x FY13E and 24x FY14E EPS. We
value Dabur at 25x FY14 EPS and arrive at a one-year forward target price of INR135, a
potential upside of 5%. Maintain Neutral. While improving gross profitability in the
international division is a key positive, an increase in input costs constitutes the key
risk.
29 October 2012
5
Dabur India
Dabur India: an investment 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.
Key investment arguments
Strong herbal positioning with little competition
from MNC in categories like Hair Oil, CHD, Health
Supplements etc.
 Dabur has the second broadest product portfolio
(after HUL) with presence in high potential
categories like skin care, hair care, oral care and
Health supplements.
 The company is likely to be under MAT for the next
7-8 years, resulting in huge tax savings.
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Key investment risks
Higher than anticipated ad spends could impact
profitability adversely.
 We believe that will face rising competitive intensity
in some of the key business segments; 1) Toothpaste
(likely entry of P&G) 2) Hair Oils (aggressive strategy
of Marico and Emami) 3) Shampoo (aggressive
strategy of P&G, HUL, Garnier etc resulting in
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Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
Dabur
Marico
GCPL
29.8
23.7
10.3
8.5
3.7
3.2
22.0
17.8
28.0
22.3
5.9
4.8
2.6
2.1
18.9
15.0
26.7
21.9
6.2
5.4
3.5
2.8
19.4
15.8
squeeze in sales growth and margins) and 4) Skin
care (rising focus of MNCs on the mass to mid
premium segment).
Recent developments
Dabur is expanding rural distribution network in ten
states as part of Project Double
 New products such as hair serums and professional
hair care products under the Vatika brand were
launched.
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Valuation and view
Our EPS estimate stands at INR4.4 for FY13E and
INR5.4 for FY14E, implying a PAT CAGR of 20% over
FY12-14E.
 The stock trades at 29.5x FY13E and 24x FY14E EPS.
Maintain Neutral.
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Sector view
We have a cautious view on the sector on back of
inflationary tendency, volatile input cost
environment and a possible slowdown in the rural
economy.
 Companies with low competitive pressures and
broad product portfolios will be able to better with
stand any slowdown in a particular segment.
 Longer term prospects bright, given rising incomes
and low penetration.
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EPS: MOSL forecast v/s consensus (INR)
MOSL
Consensus
Forecast
Forecast
FY13
4.4
4.4
FY14
5.5
5.2
Variation
(%)
0.3
4.8
Target Price and Recommendation
Current
Price (INR)
130
Target
Price (INR)
Upside
(%)
Reco.
135
3.8
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Promoter
Domestic Inst
Foreign
Others
29 October 2012
Sep-12
68.7
5.4
19.6
6.4
Jun-12
68.7
6.7
18.0
6.6
Sep-11
68.7
5.5
19.5
6.3
6
Dabur India
Financials and Valuation
29 October 2012
7
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Dabur India
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