For Q1FY09, Dabur India posted a steady topline growth of 16% y-o-y (led by 10-11% volume growth) to Rs604cr (Rs521cr) on a consolidated basis in line with our expectations.
The growth comes on the back of robust growth in its international business division that grew 40% y-o-y led by strong performances in GCC, Egypt and African markets and foods division.
The consumer health division grew 24.9% led by strong growth in its OTC portfolio. However, the consumer care division registered a mere 10% y-o-y growth during the quarter.
Earnings growth, despite significant higher other income (up 55% y-o-y), was impacted by margin contraction on account of its retail venture (New-U). Higher tax rate (up 130bp due to low base) and depreciation charges also impacted earnings growth for the quarter.
The road ahead
Over FY08-10, we expect Dabur India to report a CAGR growth of 17.2% in consolidated topline backed by strong growth in divisions like international business and consumer health, new product launches, better distribution reach and roll-out of its retail venture.
On the Operating front, we expect a CAGR of 14.4% in EBITDA largely supported by steady topline growth as margins are expected to decline owing to losses incurred on its retail venture and rising input cost inflation (particularly packaging materials).
Earnings are expected to grow at 15% CAGR. While we remain bullish on Dabur’s diversified product portfolio, with a niche positioning in the herbal/natural space, we believe the company is witnessing a slowdown in its core categories like toothpaste, hair oils and homecare.
At current valuations, we believe the stock factors in the growth potential in terms of earnings (expected to witness moderation due to losses in retail and margin contraction on account of brand re-launches and input cost inflation. We keep a NEUTRAL view on the stock.