Dabur recorded 17.2% y-o-y growth (~4-5% price-driven and balance by volumes) in consolidated revenues in H1FY09 at Rs13 billion, marginally below our expectations of Rs13.2 billion (Rs7.1 billion for Q2FY09).
Consumer care division (CCD) including foods division, contributing 77% to revenues, recorded 11.3% y-o-y growth. Digestives category, however registered a mere 3.7% growth due to decline in Pudinhara sales.
After excluding discontinued Vatika soap business, baby / skin care category reported strong 18.1% y-o-y increase in revenues. Home care segment also recorded a lower 9.4% growth due to drop in Odomos sales.
The international business division (contributed ~19% to revenues in H1 FY09 against ~16% last year) posted a strong 40.1% y-o-y growth led by impressive performance in GCC, Egypt, Nigeria, Yemen and North African markets.
Operating margins declined by 130bps to 16.4% during H1 FY09 due to sharp rise in raw material and advertising cost.
The company has not taken any price hike during Q2 FY09 and has no plans of taking further price hike in the next six months. We expect the margins to remain flat over the next couple of years.
Dabur plans to scale up its presence in the shampoo and skin care categories, and build up its OTC portfolio, which is currently very small.
It is also looking at aggressively expanding its homecare portfolio, while the retail venture (under the ’new-u’ brand) is expected to provide additional growth triggers going forward.
The contribution of international business division has also increased to 19% of the total revenues. We expect the operating margins to remain flat due to rising input cost pressures and adspend.
The retail venture is expected to record a loss of ~ Rs175 million in FY09 and is likely to break even by FY10-11.
At the current market price of Rs80, the stock is trading at 15.2x FY10E consolidated EPS of Rs5.3. We recommend BUY rating on the stock, with a one-year price target of Rs91 - an upside of 13.2%.