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Research
Accumulate Dabur - Consumer takes care of Dabur topline - Elara Capital
Posted On : 2010-11-04 22:29:01( TIMEZONE : IST )
- Dabur
- Rating : Accumulate
- Target Price : INR111
- Upside : 11%
- CMP : INR100 (as on 29 October 2010)
Consumer care division leads charge
For Dabur, consumer care division continues to support the momentum with a 15% YoY growth and sales of INR7,525mn in Q2FY11. Home care and food category contributed higher growth of 42% and 22% respectively. Hair care (~29% sales contribution to CCD), the largest category, posted a growth of 5.8% during H1FY11 whereas oral care (~18% to CCD sales) and health supplement (~17%) grew by 11% and 13% respectively in Q2FY11.
Competition in hair care too close for comfort
The hair care category - comprising hair oils and shampoos - has shown a lacklustre performance in Q2FY11. Its hair care and shampoo category is facing margin pressures due to the increasing key raw material prices as well as stiff competition. Dabur's hair oil reported an increase of 7% and its largest brand Amla Hair Oil grew by 10.4% during the quarter. Growth in its shampoo category has slowed down from 37% in H1FY10 to 15% in H1FY11. In Q2FY11, it grew by ~14%.
International business division to cushion top line growth
Dabur's International Business Division (IBD) posted a growth of 23.3% in H1FY11 and 18.7% in Q2FY11 - primarily driven by the volume uptick. It now accounts for ~15.6% of Dabur's total consolidated revenue. GCC, Egypt, North Africa, Nigeria and Levant were the key growth markets during the quarter. Shampoos, Hair Creams and Toothpastes were the key category drivers for IBD.
Valuation and recommendation
Although we are optimistic about Dabur's growth prospects given its strong positioning in the consumer care division, we are not so at ease about the premium valuation the stock is currently trading at. At the current price, the stock is trading at 29.8x FY11E earnings of INR 3.4 and 26.2x FY12E EPS of INR 3.8. Dabur trades at a premium to peers in terms of M-Cap to sales too at 4.2x FY11E and 3.6x FY12E sales. Hence we retain our 'Accumulate' rating on the stock with the target price of INR111.
