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Please see the end of the report for disclaimer and disclosures. -1-

DABUR INDIA LIMITED

RESEARCH

EQUITY RESEARCH May 16, 2008

Investing in future growth

Dabur India Limited (DIL) reported a decent top-line growth of 13.6% yoy

and 15.2% for Q4’08 and FY’08, respectively. Despite inflationary

pressure, the Company was able to expand its gross profit margins by

260 bps to 53.9% and 90 bps to 53.4% for Q4’08 and full year,

respectively, attributable to improvement in the sales mix and better input

cost management in the food division. However, EBITDA margins for the

quarter declined by 50 bps to16.1% due to increase in raw-materials cost

more than offsetting the gains from sales mix.

The Company is giving its product portfolio a face lift as 60% of the

Consumer Care Division (CCD) portfolio and 50% of the Consumer Health

Division (CHD) products were re-launched during the year with complete

new packaging and changes in the formulation. We believe this strategy

will help the Company to drive top-line growth. Besides, the Company’s

retail business is still in its gestation period; thus, losses from this division

is inevitable, which will put pressure on the bottom line.

Taking in view the Company’s consolidated performance, we expect the

net sales and earnings to grow at a CAGR of 14.7% and 11.5% over

FY08–10E, respectively. At the current price, the stock is trading at a

forward PE of 27.5x for FY09E. We expect a limited upside from these

levels and, hence, maintain our Hold rating on the stock.

Dabur India Limited Hold

Key Figures (Consolidated) Quarterly Data Q4'07 Q3'08 Q4'08 YoY% QoQ% FY'07 FY'08 YoY%(Figures in Rs. mn, except per share data)

Net Sales 5,307 6,497 6,065 14.3% (6.6%) 20,431 23,611 15.6%EBITDA 881 1,163 978 11.0% (15.9%) 3,497 4,093 17.0%Net Profit 709 876 695 (2.0%) (20.6%) 2,563 2,998 17.0%

Margins(%)

EBITDA 16.6% 17.9% 16.1% 17.1% 17.3%NPM 13.4% 13.5% 11.5% 12.5% 12.7%

Per Share Data (Rs.)Adjusted EPS 0.80 1.00 0.76 (4.5%) (24.1%) 2.94 3.44 16.9%

RESULTS REVIEW

Share Data

Market Cap Rs. 85.6 bn

Price Rs. 99.05

BSE Sensex 17,434.94

Reuters DABU.BO

Bloomberg DABUR IN

Avg. Volume (52 Week) 0.3mn

52-Week High/Low Rs. 134 / 72

Shares Outstanding 864.0

Valuation Ratios (Consolidated)

Year to 31 March 2009E 2010E

EPS (Rs.) 3.6 4.3

+/- (%) 4.8% 18.8%

PER (x) 27.5x 23.1x

EV/ Sales (x) 3.2x 2.8x

EV/ EBITDA (x) 19.8x 17.0x

Shareholding Pattern (%)

Promoters 71

FIIs 13

Institutions 9Public & Others 7

Relative Performance

306090

120

150

180

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Apr

-08

May

-08

DABUR Rebased BSE Index

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DABUR INDIA LIMITED

RESEARCH


Result Highlights

• Net sales for Q4’08 registered a moderate growth of 14.3% yoy to

Rs. 6.06 bn, while for FY’08 the improvement was 15.6% yoy.

• EBITDA margin for the quarter declined marginally to 16.1% on

account of high raw-material cost and increase in employee cost as a

percentage of net sales. But for the full year, the Company was able to

keep its EBITDA margin flat at 17.3%.

• Adj. Net profit for the quarter declined by 4.6% to Rs. 666.5 mn; this

decline was due to significantly a higher tax rate at 13.6% in the

current quarter as compared to 6.5% in the base year. The low tax rate

last year was due to a deferred tax credit of Rs.45 mn, which reduced

overall tax incidence.

Segmental Highlights

The Company completed the integration of CCD with Food Business in the

last quarter, which resulted in a larger distribution network. CCD

contributed around 91% to the total revenue, and the division grew by

modest 16% for FY’08. During the year, the CCD portfolio got a whole new

facelift as almost 60% of the products were re-launched to keep up with the

dynamic environment.

• Hair Care category witnessed growth at a 15% for the year and 19%

for the quarter led by Shampoo portfolio, which grew by an impressive

25% and 28% during the year and Q4’08, respectively. The Company

has strengthened its product portfolio with the launch of new shampoo

variant in Q4’08. Dabur has also entered into the conditioner market

with the launch of two variants under its umbrella brand Vatika, during

Cost AnalysisPeriodas % of Net Sales Mar-08 Mar-07 Inc/Dec Mar-08 Mar-07 Inc/DecRaw materials 40.5% 33.8% 6.7% 40.5% 39.7% 0.8%

Purchase of traded goods

3.4% 4.7% (1.3%) 6.7% 9.3% (2.5%)

Advertising Exp. 12.3% 12.2% 0.0% 12.5% 12.5% (0.0%)Employee Exp. 8.8% 7.4% 1.4% 8.4% 8.2% 0.3% Other Exp. 16.7% 15.0% 1.7% 15.1% 14.7% 0.4% Source:Company Data

Three months Tweleve Months

Source:Company Data

CCD Revenue BreakupOral Care

20%Hair Care

28%

Digestive & Candies

8%

Baby & Skin Care6%

Home Care6%

Foods13%

Health Supplement

19%

Adj. Net Profit declined due to significantly higher taxes

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DABUR INDIA LIMITED

RESEARCH


the quarter. Hair Oils too recorded a modest growth of 13% for FY’08,

led by 18% growth in Dabur Amla hair oil.

• Oral Care category performed well and increased its market share in

the toothpaste category to 12.5%, an increase of 200 bps yoy.

Meswak, the star performer, grew by a staggering 39.7% yoy for

FY’08, followed by Babool and Red toothpaste which grew at 29.6%

and 22.7% yoy, respectively. Further, Toothpowder also reported a

marginal increase. Overall the Oral Care category witnessed a growth

of 15% during FY’08.

• Health Supplements, generally a laid-back segment, also witnessed

some action this year with the launch of a new variant of

Chyawanprash and a new product, Chyawan Junior (malted food

drink). Further, 14.6% growth in this segment was backed by Dabur

Glucose and Dabur Honey which grew at 31.5% and 26.1% yoy for

FY’08, respectively.

• Digestive category grew at 11.1% for FY’08, led by a growth in

Pudin Hara (15.7%), Hajmola Candies (21.1%) and Tablets (8.5%).

Baby & Skin Care category witnessed a moderate growth of 4.1%,

during FY’08 due to a lower focus on the Soap category.

• Home Care category registered a growth of 10.3% for FY’08. The

growth of Home Care was dragged down by a flat growth in Odomos,

which was due to high base last year on account of mosquito

epidemic. The Company has launched a new hard surface cleaner

brand, ‘Dazzl’.

• Due to the restructuring of Foods Business’s distribution network, the

growth in the business was slightly lower at 19% for FY’08. Real Fruit

Juice recorded a growth of 20% yoy for FY’08, led by 34% growth in

Real 200 ml pack. Further, Non-juice portfolio of Foods grew at 25%

for the year with Hommade paste growing at 15% and Lemoneez at

26%.

Consumer Health Division (CHD), which had a negative growth for few

quarters, showed a turnaround with the growth of 21% for Q4’08 and 5.4%

for FY’08.The Company is trying to reposition its Ayurvedic portfolio, as

over 50% of the OTC portfolio has undergone packaging up-gradation, and

Meswak grew by a staggering 39.7% yoy

Integration of Foods Business completed with CCD

Company launched a new hard surface cleaner brand, ‘Dazzl’.

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DABUR INDIA LIMITED

RESEARCH


the Company is aggressive on its plan to invest behind its brands in terms

of advertisement and publicity in FY’09.

International Business recorded a growth of 25.5% for the full year and

17% during the quarter. The Middle Eastern market posted a strong

performance, growing by 32.8%, led by the introduction of several new

products under the Vatika Hair Care franchisee. Sales in Egypt were

strong, growing by 49%, while sales in Nigeria has doubled, reaching

Rs.200 mn. The division continues to maintain a strong growth momentum

with significant investment in branding and distribution network.

Health & Beauty (H&B) Dabur’s health, wellness and beauty chain New-U

was launched in Q3’07. Since then four more stores have been opened

totalling to 6 stores. The Company reported Rs.75 mn losses on stores

operations. The Company has aggressive plans to open around 40–50

stores by 2009. However, execution largely depends on the initial success

of existing stores.

Key Event

The Board has proposed the final dividend of Rs. 0.75 per equity share

having face value of Re 1/- each for the financial year 2007–08, aggregating

to Rs. 648 mn.

Outlook

The Company now has higher distribution footprint and enhanced visibility

for the food business, post integration of food and CCD, which will increase

its contribution to the total sales. Besides, despite inflationary pressure, we

don’t see any pressure on overall top line as the market is still under

penetrated. However, keeping margins at the current level will be a

challenge considering that the Company is entering into new product

categories (surface cleaner, malted food drinks) and aggressively re-

launching and reinventing its product portfolio. On the contrary, losses from

the new retail venture will put pressure on bottom line.

Division wise Revenue

CHD6%IBD

16%

Misc.2%

CCD76%

Source:Company Data

*Food now is a part of CCD

Company is entering into new product categories (surface cleaner, malted food drinks)

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DABUR INDIA LIMITED

RESEARCH


Taking in view the Company’s consolidated performance, we expect the

net sales and earnings to grow at a CAGR of 14.7% and 11.5% over

FY08–10E, respectively. At the current price, the stock is trading at a

forward PE of 27.5x for FY09E. We expect a limited upside from these

levels and, hence, maintain our Hold rating on the stock.

Key Figures (Consolidated)

Year to March FY06 FY07 FY08 FY09E FY10E CAGR (%)

(Figures in Rs. mn, except per share data) (FY08-10E)

Net Sales 17,228 20,431 23,611 27,152 31,089 14.7%Adj. EBITDA 2,866 3,497 4,093 4,332 5,038 10.9%Adj. Net Profit 2,136 2,563 2,998 3,136 3,727 11.5%

Margins(%)

EBITDA 16.6% 17.1% 17.3% 16.0% 16.2%NPM 12.4% 12.5% 12.7% 11.6% 12.0%

Per Share Data (Rs.)Adj. EPS 2.47 2.94 3.44 3.60 4.28 11.6%PER (x) 25.1x 32.3x 28.8x 27.5x 23.1x

Indiabulls (H.O.), Plot No- 448-451, Udyog Vihar, Phase - V, Gurgaon - 122 001, Haryana. Ph: (0124) 3989555, 3989666

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DABUR INDIA LIMITED

RESEARCH


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