Dabur IndiaCMP: INR118 TP: INR113 Neutral

BSE SENSEX S&P CNX

16,877 5,118

Bloomberg DABUR IN

Equity Shares (m) 1,740.7

52-Week Range (Rs) 120/92

1,6,12 Rel. Perf. (%) 6/23/16

M.Cap. (INR b) 205.8

M.Cap. (USD b) 3.7

24 July 2012

1QFY13 Results Update | Sector: Consumer

Dabur India has posted in-line results for 1QFY13, with adjusted PAT at INR1.54b against our estimate of

INR1.52b.

Sales growth at 21.4% was higher than we had expected; volumes grew 12%. Gross margin expanded 217bp to

50% on the back of easing input costs and price hikes. EBITDA margin declined 70bp to 14.1% owing to higher

advertising expenses (up 300bp). EBITDA grew 16% to INR2.1b against our estimate of INR2b. Interest cost

increased 47% due to MTM loss on INR1.5b forex debt. A 58% increase in other income and lower tax rate

(down 50bp) led to 21% PAT growth to INR1.54b.

Domestic sales grew 20% to INR10.1b; gross margin expanded 150bp to 45.6%; EBITDA margin remained flat

at 14.3% due to 200bp increase in ad spend. EBITDA grew 18.6%; 46% growth in other income enabled 30.5%

growth in adjusted PAT to INR1.2b.

All key geographies performed well, resulting in healthy 24% growth in International Business Division (IBD).

Dabur has integrated Namaste and Hobi into Dabur International.

The management has indicated high single-digit volume growth for FY13. It expects competitive intensity to

sustain in major businesses, including shampoos and skin care.

We expect Dabur to continue with aggressive pricing and higher ad spends, which will continue to impact

profit margins. We estimate PAT CAGR of 18% over FY12-14. The stock trades at 27.5x FY13E and 23x FY14E EPS.

Maintain Neutral.

Sreekanth P.V.S. (Sreekanth.P@MotilalOswal.com); +9122 3029 5120

Investors are advised to refer through disclosures made at the end of the Research Report.

1

Dabur India

24 July 2012 2

Consol volumes up 12%, standalone 11.6%; ad spends increase; noticeablegross margin expansion Domestic sales growth was 20% at INR 10.1b with volumes up 11.6%. Gross margin

expanded 150bp to 45.6%; EBITDA margin remained flat at 14.3% due to 200bp

increase in ad spend. EBITDA grew 18.6%; 46% growth in other income enabled

Adj PAT growth of 30.5% at INR1.2b.

Consolidated Net sales grew 21.4% with volumes up 12%. Gross margin expanded

217bp to 50% on the back of easing input costs and price hikes.

EBITDA margin declined 70bp to 14.1% owing to higher ad expenses (up 300bp).

EBITDA grew 16% to INR2.1b (est INR2b).

Interest cost rose 47% due to MTM loss on INR1.5b forex debt. A 58% increase in

Other income and lower tax rate (down 50bp) boosted 21% PAT growth to INR

1.54b (est INR1.52b).

Sales up 21.4% driven by 24% growth in international business… …. Healthy volume growth at 12%

EBITDA margins decline 70bp YoY Healthy PAT growth driven by other income

Source: Company, MOSL

Domestic business: Hair oils up 8.4%, shampoos 23%, home care 14.4%,foods 34.5% Hair oils posted 8.4% growth led by double digit growth in Amla hair oil, while

Vatika reported a modest growth.

Shampoos posted 23% growth; Henna (green variant) was the best performer in

this category with27.3% growth.

Dabur India

24 July 2012 3

Toothpastes grew double digits with Meswak and Dabur Red performing well,

While Babool sales was impacted due to price hikes.

Skin care growth was at 13.3%, with Fem growing at 13.4% and registering market

share gains.

Home care posted 14.4% growth led by Odomos; while Odonil sales remained

under pressure due to low CSD sales.

Foods segment grew 34.5%; Real and Activ did well, up 37.6%. Grape Juice, Real

Plum and Burrst Aam Panna were the new flavors during the quarter.

OTC and ethicals grew 12.7%, while Digestive grew 9.8%, health supplements

grew 18% during 1QFY13.

Dabur has been aggressively investing in its brands and we expect it will continue

to do so in order to gain market share. We believe aggressive ad spends will keep

profit margins under check.

Dabur is expanding its rural distribution meaningfully which should enable it grow

ahead of the market and increase share, even if the rural market growth slows

down.

Management expects competitive intensity to sustain in major businesses

including shampoos and skin care. It also indicated that bad monsoon could lower

the pace of growth due to weak consumer sentiment and higher input costs.

Margin contraction in Consumer care and Foods consolidated)

Y/E March 1QFY13 1QFY12 % Chg FY12 FY11 % Chg

Net Sales (INR m) 15,389 12,815 20.1 52,832 43,926 20.3

Consumer Care 11,748 10,163 15.6 44,896 34,813 29.0

Foods 2,115 1,557 35.9 6,022 4,933 22.1

Retai l 133 84 58.2 424 205 106.7

Others 624 242 157.8 1,490 823 81.0

EBIT (INR m) 2,936 2,536 15.8 10,822 9,861 9.8

Consumer Care 2,397 2,126 12.8 9,755 8,975 8.7

Foods 334 250 33.8 1,111 941 18.0

Retai l -24 (26) -8.7 (116) (91) 27.2

Others 44 2 1,886.4 73 36 101.4

EBIT Margin (%) 19.1 19.8 -0.7

Consumer Care 20.4 20.9 -0.5 21.7 25.8 -4.1

Foods 15.8 16.0 -0.2 18.4 19.1 -0.6

Retai l (18.1) (31.3) 13.3 (27.4) (44.6) 17.1

Others 7.0 0.9 6.1 4.9 4.4 0.5

Source: Company, MOSL

IBD and Food record impressive growth

Category Growth (%) 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13

Hair Care 8.9 2.7 3.8 11.1 9.0 15.9 19.6 19.8 10.4

Health Supplements 43.0 29.4 12.7 20.7 0.0 7.8 13.5 10.9 18.0

Oral Care 20.2 10.4 9.4 8.9 12.7 6.0 11.6 7.7 8.1

Foods 21.2 21.4 42.0 30.1 31.5 27.5 17.4 30.4 34.5

Digestives 14.7 14.1 11.3 -3.8 7.8 3.8 19.3 19.4 9.8

Skin care 12.4 9.6 18.0 26.3 16.3 0.0 4.9 17.6 13.3

Home Care 31.5 43.3 24.2 31.1 24.9 0.5 18.0 18.0 14.4

IBD (organic) 28.7 17.9 14.2 9.9 12.5 22.8 37.8 45.8 24.0

Source: Company, MOSL

Dabur India

24 July 2012 4

International business: Healthy performance across all geographies International business organic sales grew 24%; growth was largely led by GCC

(22% in constant currency), Egypt (18%) and Nigeria (21%).

Dabur has integrated Namaste and Hobi into Dabur international.

Dabur plans to manufacture products locally in Africa in order to increase supply

chain efficiencies.

New products such as hair serums and professional hair care products under the

Vatika brand were launched.

Valuation and view: Sustained competitive intensity to keep margins undercheck; Neutral We note that Dabur has been aggressive in distribution expansion and investing

in it key brands. We believe this will keep profitability under check.

Also it is facing aggression on the pricing and promotion fronts from Colgate

(toothpaste), HUL & P&G (shampoo), Marico (hair oils) and several players in skin

care. To maintain/increase market share, we expect Dabur to continue with

aggressive pricing and higher ad spends which will impact profit margins.

We estimate PAT CAGR of 18% for FY12-14. The stock trades at 27.5x FY13E and 23x

FY14E EPS. Maintain Neutral.

Dabur India

24 July 2012 5

Company descriptionDabur India is the second largest FMCG company in India,

in terms of Product portfolio. Dabur is a market leader

in Chyawanprash category and is increasing its presence

in other traditional categories like Hair Care, oral care,

household care and foods. Dabur's acquisition of Fem

Care given it a strategic presence in the high potential

skin care segment.

Key investment arguments Strong herbal positioning with little competition

from MNC in categories like Hair Oil, CHD, Health

Supplements etc.

Dabur has the second broadest product portfolio

(after HUL) with presence in high potential

categories like skin care, hair care, oral care and

Health supplements.

The company is likely to be under MAT for the next

7-8 years, resulting in huge tax savings.

Key investment risks Higher than anticipated ad spends could impact

profitability adversely.

We believe that will face rising competitive intensity

in some of the key business segments; 1) Toothpaste

(likely entry of P&G) 2) Hair Oils (aggressive strategy

of Marico and Emami) 3) Shampoo (aggressive

strategy of P&G, HUL, Garnier etc resulting in

Comparative valuations

Dabur Marico GCPL

P/E (x) FY13E 27.5 28.0 26.7

FY14E 23.0 22.3 21.9

P/BV (x) FY13E 9.7 5.9 6.2

FY14E 8.0 4.8 5.4

EV/Sales (x) FY13E 3.4 2.6 3.5

FY14E 3.0 2.1 2.8

EV/EBITDA (x) FY13E 20.5 18.9 19.4

FY14E 17.1 15.0 15.8

Shareholding pattern (%)

Jun-12 Mar-12 Jun-11

Promoter 68.7 68.7 68.7

Domestic Inst 6.7 6.5 5.8

Foreign 18.0 18.8 19.2

Others 6.6 6.1 6.2

Dabur India: an investment profile

Stock performance (1 year)

EPS: MOSL forecast v/s consensus (INR)

MOSL Consensus Variation

Forecast Forecast (%)

FY13 4.3 4.4 -1.9

FY14 5.2 5.2 0.2

Target Price and Recommendation

Current Target Upside Reco.

Price (INR) Price (INR) (%)

118 113 -4.2 Neutral

squeeze in sales growth and margins) and 4) Skin

care (rising focus of MNCs on the mass to mid

premium segment).

Recent developments Dabur plans to manufacture products locally in Africa

in order to increase supply chain efficiencies.

New products such as hair serums and professional

hair care products under the Vatika brand were

launched.

Valuation and view Our EPS estimate stands at INR4.3 for FY13E and

INR5.2 for FY14E, implying a PAT CAGR of 18% over

FY12-14E.

The stock trades at 27.5x FY13E and 23x FY14E EPS.

Maintain Neutral.

Sector view We have a cautious view on the sector on back of

inflationary tendency, volatile input cost

environment and a possible slowdown in the rural

economy.

Companies with low competitive pressures and

broad product portfolios will be able to better with

stand any slowdown in a particular segment.

Longer term prospects bright, given rising incomes

and low penetration.

Dabur India

24 July 2012 6

Financials and Valuation

Dabur India

24 July 2012 7

N O T E S

DisclosuresThis report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducementto invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has beenfurnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates

or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOStor any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.

The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or itsaffiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or

employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliatesor employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitnessfor a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision

based on this report or for any necessary explanation of its contents.

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of InterestStatement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Disclosure of Interest Statement Dabur India1. Analyst ownership of the stock No2. Group/Directors ownership of the stock No3. Broking relationship with company covered No4. Investment Banking relationship with company covered No

Analyst CertificationThe views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, orwill be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsiblefor preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Regional Disclosures (outside India)This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary tolaw, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For U.K.This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial

Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity towhich this document relates is only available to investment professionals and will be engaged in only with such persons.

For U.S.MOSt is not a registered broker-dealer in the United States (U.S.) and, therefore, is not subject to U.S. rules. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange

Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,Motilal Oswal has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Any business interaction pursuant to this report will have to be executedwithin the provisions of this Chaperoning agreement.

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional

investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to majorinstitutional investors and will be engaged in only with major institutional investors.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MarcoPolo and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

Motilal Oswal Securities LtdMotilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025

Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com