28-12-2012, 05:13 PM
Dabur India Limited (DIL)
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Company Description
Dabur India Limited (DIL) is a leading consumer
goods company in India with a turnover of about
US$900mn in FY11. It is present in over 60
countries, and through 2.8mn outlets in India. Dabur
has a diversified product portfolio, cutting across
categories such as hair care, oral care, skin care,
foods and home care. With the acquisitions of
Namaste Labs, US and Hobi Group, Turkey Dabur
i s building presence in the African continent.
Investment Thesis
We like Dabur for its relatively higher pricing power
given less exposure to segments like shampoos,
soaps etc that are facing high competitive intensity.
This as well as volume performance in relatively
under-penetrated categories that dominate the
portfolio should drive growth. We expect consumer
care and foods to be the main drivers domestically.
Given its successful history in growing inorganically,
Dabur is well placed to ramp up in African countries
t hrough Namaste and Hobi acquisitions.
Comparative analysis vs industry peers
• Dabur currently trades at about 20% premium vs its closest domestic peer,
Godrej Consumer, given 1) about 10% higher RoE for Dabur but for similar
growth and 2) Dabur’s lesser leverage. We expect the premium to sustain
going ahead for these reasons.
• Another close peer Marico trades at similar valuation as Dabur, despite lower
RoE, on the back of its higher growth expectations
• Compared to Nestle, Dabur now trades at about 36% discount given: 1)
Nestle’s 76% market share in baby foods (a difficult-to-enter segment as
advertising is prohibited), and 2) significantly higher RoE vs Dabur
• While Dabur currently trades at similar valuation vs ITC, led by similar growth
and RoE converging towards that of ITC, it trades at a 12% discount to HUL
given HUL’s significantly higher RoE, but higher growth in Dabur at 18% vs
HUL at 15%
EBITDA margin to take a hit due to acquisitions
Dabur’s overseas acquisitions have lower margins (10-12% in Hobi and 12-14%
in Namaste vs company-level 18%). On the back of this and inflation in raw
material costs, we expect EBITDA margin in consumer care division to drop
270bp in FY12. Led by this but offset by scaled price increases and better retail
margins as economies of scale kick in we expect company-level EBITDA margins
(incl other income) to decline only 30bp during FY11-13.