Dabur (India) Limited - A healthy investment?
dabur.com
DABUR INDIA (Last traded on BSE: 07/04/99, % change over previous close:2.39%)
Exg. Code Open High Low Close Vol. Value (Rs)
BSE 96 571.0 588.0 565.3 578.5 72,900.0 42,036,100.0
NSE 88 565.0 588.0 565.0 580.0 55,500.0 32,013,580.0
BSE=Bombay Stock Exchange
NSE=National Stock Exchange
Profile
Dabur is India's largest manufacturer of natural/herbal and ayurvedic products with interests in health care, personal products, foods as well as pharmaceuticals. It has over 500 products in its portfolio which include market leader brands such as Hajmola, Chyawanprash, Pudin Hara, Amla and Vatika hair oil. The strengths of the company lie in its strong brand equity, an excellent distribution network, and research support. Dabur has decided to cap and gradually divest from its non-core bisimesses of cosmetics, guargum, finance, branded pharma and foods. This will release reasources for driving core business growth (FMCG: 75% of sales and pharma & others: 25%). It expects a total loss of revenue of Rs 995 m over a 3 year period by shelving these non-core businesses. It is in the process of selling marginal brands in oral and edible oil segments, and increasing foucs on its key brands. It has shortlisted 12 brands which will recieve greater advertising and sales promotion outlays. According to the management, businesses worth Rs 175 m are expected to be discontinued in FY99. Dabur has reliquished its majority stake in Excelsia Foods - a JV with Osem of Israel to Nestle. It is also expected to sell its stake in the JV with Agrolimen which markets the Boomer brand of chewing gum. According to the management, extra-ordinary income to the tune of Rs 500 m could be booked in FY99. Dabur will continue to focus on its recently launched foods business. It has plans to launch and focus on nature based ethnic convenience foods.
Shareholding
Indian promoters : 79.1 %
Foreign collaborators :
Indian inst/Mut Fund : 3.3 %
FII's : 6.8 %
Public/Free float : 10.8 %
No. of shareholders : 29,749
Equity Share Data
No. of Months 12 12 12
Year Ending 31/03/96 31/03/97 31/03/98
High Rs 290 281 287
Low Rs 202 203 185
Sales per share Rs 197.1 247.9 284.6
Earnings per share Rs 12.0 14.8 14.9
Cash flow per share Rs 16.3 18.8 20.6
Dividends per share Rs 3.00 3.00 3.50
Dividend yield % 1.0 1.1 1.2
Book value per share Rs 55.6 67.5 76.9
Shares outstanding (eoy) mn 28.51 28.51 28.51
Bonus/Rights/Conversions - - -
Price/Sales ratio x 1.5 1.1 1.0
P/E ratio x 24.1 19.0 19.2
P/CF ratio x 17.8 15.0 13.9
Price/Book value x 5.2 4.2 3.7
Dividend payout % 24.9 20.3 23.4
Mkt Cap Rs mn 8,268 8,011 8,182
No. of employees 000 4 5 5
Total wages & salary Rs mn 231 299 407
Sales/employee Rs Th 1,276.8 1,481.1 1,560.2
Wages/employee Rs Th 52.5 62.7 78.3
Net profit/employee Rs Th 78.0 88.4 81.9
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Investment opinion courtesy: Dutt Stock Broking Ltd.
Dabur India Ltd (Industry: Consumer Products)
Recommendation-BUY
Earnings boosted by Strong Sales Volume growth in New & Existing Products
EXECUTIVE SUMMARY
We have upgraded Dabur India Ltd. (Dabur) to BUY. Our 12 month target price for Dabur is Rs. 290 reflecting a upside potential of 23.4%.
Growth in earnings is being driven by a Compounded Annual Growth rate of 25% in sales, manufacturing plant efficiencies and new product launches.
Dabur's share currently trades at 11.7 times our 1998 EPS estimate of Rs. 19.7, a 105% discount to its peer group. Dabur's price warrants at least a peer group P/E multiple specially since our EPS estimate for FY'98 shows a growth rate of 29%, the highest in the peer group.
Dabur's stock has fallen victim to profit-taking since June 1997 creating an accumulation opportunity for long-term investors.
Dabur is a market leader and controls over 50% market share in all its main product categories.
INVESTMENT POSITIVES
Distribution: We believe that Dabur's key strength lies in its distribution network of 24 warehouses, 3,849 exclusive dealers, 1,629 non-exclusive dealers and over 1.7 million retailers spread throughout India. Dabur's distribution network is one of the largest and most efficient consumer product distribution networks in India.
Strong Brand Equity: Dabur is a household name and Dabur products are found in almost every Indian household.
Proprietary Product Formulas and Research & Development: Dabur has numerous proprietary formulas to natural products based on Research for the past 112 years. Among other products, Dabur has produced Paclitaxel, an anticancer drug based on its own process.
New Product Launches: Dabur has successfully launched over 10 new products in FY 98. We believe that these products will ramp up earnings in FY 98 and beyond.
Exports: Dabur's export sales have grown at a compounded annual growth rate of 48%. With increasing consumption of natural products in international markets, Dabur is uniquely positioned to offer these products.
Capex: Dabur continues to invest in its brands and distribution network. Capital expenditure by Dabur for YE March 31, 1998 includes a Rs. 200 million investment in warehouses, Rs 100 million in packaging and Rs. 150 million in building brands.
Liquidity: The Dabur Family which owns 79% of outstanding Common Stock can sell their shares only after March 1998 as per the IPO document. Though we don't believe that the family will dilute their holdings, they will be free to sell their holdings after FY '98. Dabur is also planning a $50 million GDR issue in FY'99 which will increase outstanding common stock by 9 million shares. We believe that the above two developments will increase the liquidity/free float in Dabur shares.
INVESTMENT NEGATIVES
Price Sensitivity of Raw Materials: Raw materials used by Dabur including sugar, molasses, oil & herbs are price sensitive to changes in weather patterns or demand. We believe any upward pressure on raw material prices could erode Dabur's operating margins since raw materials account for 60% of sales.
Earnings Dilution from Expansion plans: Dabur's plan for a $50 million GDR in FY 99 will dilute EPS by Rs. 6.1 in FY'99. We do not expect any positive effect on earnings from this additional capital till FY'2000.
Accounting Policies: Interest on Fixed Assets from the date of acquisition to the date of commercial production was capitalized in FY'97 (inconsistent with prior years but consistent with industry practice) resulting in an overstatement of Rs. 2,332 million on a comparative basis. A change in depreciation method for new projects to Straight line (consistent with industry practice) in FY'97 as against Declining balance in prior years resulted in an overstatement of Rs. 1,697 million on a comparative basis. Investments are considered long term and shown at cost. Had they been shown at Lower of Cost or Market, the unrealized loss would be Rs. 35 million..
VALUATION AND FINANCIAL ANALYSIS
Dabur's share currently trades at 11.7 times our FY'98 EPS estimate of Rs. 19.7, a 105% discount to its peer group. Dabur's price warrants a peer group P/E multiple specially since our EPS estimate for FY'98 shows a growth rate of 29%, the highest in the peer group.
We believe that Dabur shares could appreciate to Rs. 290. Since Dabur's FY'98 EPS growth exceeded the EPS growth of its peer group and is estimated to continue at that pace, we believe that a premium valuation is warranted. In addition, Dabur should benefit from investor's flight to quality companies.
We expect FY'98 revenues to rise by 29% primarily driven by continued demand in existing segments and introduction of new products. Our five-year estimated compounded annual growth rate for EPS is approximately 25%, which we believe will outpace the 19% estimated EPS growth of the peer group.
COMPANY DESCRIPTION
Dabur is a 112 year old Fast Moving Consumer Goods (FMCG) company. Dabur formulates, manufactures and markets Personal & Healthcare products and is a household name in India. Dabur also manufactures and markets Pharmaceutical products (specially Oncology products including Paclitaxel), Food products, Cosmetics and Veterinary products. It has a product portfolio of over 450 products.
Dabur's competitors include Hindustan Lever (a subsidiary of Unilever) and Colgate-Palmolive. Though Dabur has competitors in each product segment, its product profile is too large for any single competitor to compete in every product segment.
In 1993, Dabur went public with an IPO for 5.7 million shares at Rs. 95/share. 79% of the company's shares are owned by the "Dabur" family. Foreign Institutional Investors hold 5% and domestic institutional investors hold 3.5% shares. 10.5% of Common Stock outstanding is with the public......
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