Dabur India
Reiterate OW: Growth to accelerate, low valuation
We believe sales traction will return in FY09e with Foods and CHD recovering after FY08 results were below expectations
Dabur is one of the least expensive consumer stocks in India and trades at an 18% discount to peers on PEG basis
We move away from SOTP to headline PE valuation; our new TP of INR118 (INR125) gives total return potential of 20.1%
We believe sales traction will return in FY09e with Foods and CHD recovering after FY08 results were below expectations
Dabur is one of the least expensive consumer stocks in India and trades at an 18% discount to peers on PEG basis
We move away from SOTP to headline PE valuation; our new TP of INR118 (INR125) gives total return potential of 20.1%
Sales momentum to recover for four reasons: We expect sales growth in FY09e to improve to 16.7% (15.2% in FY08) due to 1) Foods has been integrated into the Consumer Care Division and will have access to a wider distribution network 2) Consumer Health Division has seen revival in H2FY08 and we see this continuing in FY09e on better brand support and new packaging 3) a large portion of the consumer care division portfolio has been relaunched and is likely to post good sales growth and 4) the company plans price hikes.
Cost inflation will be passed on: We estimate EBITDA margin expansion of 30 bps (20 bps decline after factoring in retail losses) in FY09e, slower than last year due to cost inflation. We lower our EPS estimates 9% in FY09e and 10% in FY10e to account for retail losses (not built in earlier), lower FY08 base and cost pressure. We still expect net profit to grow 17.6% in FY09e and 18.9% in FY10e.
Still, one of the cheapest consumer stocks available: Dabur is trading at 22.1x FY09e at a PEG ratio of 1.17, while peer average PE is 24.5x at a PEG of 1.43. We believe multiples have corrected and downside risk is priced in. We move from SOTP valuation to a headline PE basis, valuing Dabur on 22x March 2010e EPS of INR5.35 (including INR0.17 loss on retail business) giving 20.1% total return potential.
Cost inflation will be passed on: We estimate EBITDA margin expansion of 30 bps (20 bps decline after factoring in retail losses) in FY09e, slower than last year due to cost inflation. We lower our EPS estimates 9% in FY09e and 10% in FY10e to account for retail losses (not built in earlier), lower FY08 base and cost pressure. We still expect net profit to grow 17.6% in FY09e and 18.9% in FY10e.
Still, one of the cheapest consumer stocks available: Dabur is trading at 22.1x FY09e at a PEG ratio of 1.17, while peer average PE is 24.5x at a PEG of 1.43. We believe multiples have corrected and downside risk is priced in. We move from SOTP valuation to a headline PE basis, valuing Dabur on 22x March 2010e EPS of INR5.35 (including INR0.17 loss on retail business) giving 20.1% total return potential.
Likely catalysts are new launches of male grooming products and harvesting benefits of Foods integration with the Consumer Care Division.
