‘REAL’ GROWTH

Robust business model, diversified product portfolio and sound execution abilities are the factors behind Dabur India's growth story, making it a value buy for long term investors

 DABUR India, one of the oldest FMCG companies, is rapidly emerging as a leading consumer goods manufacturer. Its growth story is pinned by a robust business model, diversified product portfolio and execution abilities. The company's stock has almost doubled in the past six months and is likely to rise further, given its growth plans. Business: In its 125-year history, the company has built a host of popular brands like Dabur Chyawanprash, Amla hair oil, Hajmola, Dabur Honey, Pudin hara, Odonil and Dabur Real, most of which are market leaders in their categories. Dabur's business is structured into strategic business units of consumer care, consumer health, foods, retail and international business. While the company started off producing ayurvedic medicines, today its consumer health division, which comprises ayurvedic specialities, contributes only 7% to its topline. The consumer care division, consisting of products in personal care and healthcare, is its largest business, and accounts for more than 70% of the company's sales. Dabur entered the processed foods segment in 1997 with fruit juice brand Real. The company's international business contributed 18.5% to net sales. This division has shown the highest increase of 40% in revenue growth in FY09. Growth Strategy:The ayurvedic and herbal business areas, offering innovative and value-for-money products have been Dabur's unique selling propositions. The company has grown through a mix of organic and inorganic expansion. As part of its inorganic growth strategy, it acquired Balsara's hygiene and home care business in FY06, which added 10% to its topline during the year. The company recently acquired 72% in Fem Care Pharma, a leading player in the women's skincare product market. This acquisition is expected to be completed by June 2009. The company ventured into retail in FY07 with a lineup of health and beauty stores. However, with the economic slowdown hitting retail hard, the company has changed its strategy and scaled down its retail operations to curtail losses. Traditionally a company with a dominant presence in North India, making inroads into the southern markets has been one of its recent initiatives. The southern region now contributes 8-10% to total revenues. The company expects it to increase this to 12% this fiscal. Financials:The company's net sales have grown at a compounded annual growth rate (CAGR) of 16% over the past five years to Rs 2805.4 crore in FY09. During this period, net profits have grown at a CAGR of 30% to Rs 391.2 crore. Against this, the company's dividend payouts have grown at a lower CAGR of 27% during the corresponding period. The company, on an average, pays out around half of its net profits as dividend.
    FY09 witnessed 18% growth in consolidated net sales — 13% came in through volume growth and the remaining through price increases. Hair care and international business have brought in growth during FY09, with the former being the fastest growing category for the company. Home care and oral care, which were the laggards last year, are likely to be the key growth drivers next year. Raw material prices are a cause for concern. Having hedged its six-month requirement of raw materials, the company is looking at margin improvement in the first half of FY10 and has decided not to hike prices till October 2009. The company expects to use the resulting margin expansion to undertake investments in new initiatives, which require high fund infusion in the initial stages. While the company has robust cash flows from operations, it has been high on investment since the past two fiscal years. The company is planning a capex of Rs 200-225 crore during the current fiscal for raising capacity at its Uttaranchal unit and for a greenfield plant at Baddi in Himachal Pradesh. Having built sufficient capacity, the company expects its capex to come down significantly from FY11. Valuations: Against its peers, the company is fairly valued at the current P/E of 24.5. It has given a steady outlook for FY10, with revenue growth expected to be around 15% and the Femcare acquisition seen adding another 200 bps to growth. This will reduce the P/E to 20 for FY10. Investors can look at accumulating this stock if valuations fall significantly.
    kiran.somvanshi@timesgroup.com 

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