30 July 2008

Consumer Sector
Initiating Coverage

MANGAL KESHAV
Nuturing wealth, since 1939

Dabur India NEUTRAL

Price: INR 91

Play the Core, not the Store Target Price: INR 99

We are initiating coverage on Dabur India with a Key financials (consolidated)

Neutral rating and a 12-month price target of INR YE Mar (INR mn) FY07 FY08 FY09E FY10E

99. Despite a strong business portfolio and Total Income 20,431 23,611 27,129 30,952
excellent management, we believe Dabur will Operating profit 3,432 4,037 4,526 5,089

grow at a slower pace over the next few years. Net Profit 2,751 3,251 3,741 4,266
yoy change (%) 22.3 18.2 15.1 14.0
Core** margins would hold at current levels
EPS (INR) 3.2 3.8 4.3 4.9
despite inflationary pressure. We expect retailing
OPM (%) 16.8 17.1 16.7 16.4
losses to stretch beyond management guidance. RoE (%) 56.3 59.3 52.2 46.0
Lower inflation, slower retailing expansion and RoCE (%) 44.3 47.7 46.7 43.1
inorganic growth could be the upside risk to our P/E (x) 28.5 24.2 21.0 18.4
target price. EV/EBITDA (x) 23.0 19.6 17.4 15.5
Source: Company, Mangal Keshav Research Estimates

Price Performance Investment Rationale

(%) 1M 3M 6M 12M „ Core business portfolio will grow at 13.7% CAGR, slower than in
Absolute 15.3 (14.7) (7.5) (11.5)
the recent past. However, such slowdown is accompanied by
Rel. to Sensex 9.2 2.7 12.1 (5.1)
broader sectoral and market slowdown.
Source: Capitaline

„ Core margins are expected to hold at around 17.0% despite

Stock Details reduced pricing headroom, higher inflation and no incremental
Reuters DABU.BO
efficiency gains in Balsara. However, retailing losses will dilute
Bloomberg DABU IN
reported OPM in FY09E and FY10E by 50-80bps. We see EPS
No.of shares (mn) 865
growing at 14.5% CAGR over FY08-FY10E period driven by topline
Face Value (INR) 1
52 Week H/L (INR) 134/72
growth.
Market Cap (INR bn) 78 „ The retailing initiative is in its teething stage and we see higher
3-mth Daily Avg.Volume (no. shares) 861,868
net losses than expected by the management, spread over a longer
Daily Avg. Turnover (USD mn) 1.9
period of four years. Management has guided for cumulative
BSE Sensex 14,287
losses of INR 400mn by FY10E.
Nifty 4,314
Source: Capitaline „ The stock is trading at a PER of 18.4x and EV/EBITDA of 15.5x on a
FY10E basis. This implies a 2-year rolling forward PEG of 1.5x.
Shareholding Pattern (%)
(30 th June’08) Our target price of INR 99 is based on 20xFY10E EPS implying a
Promoters 70.7 PEG of 1.3x.
Institutions 21.8
Others 7.5
Source: Capitaline *all
* numbers in the report refer to consolidated entity, unless stated otherwise.
**Core refers to the business, excluding retailing, in the report.

Shishir Manuj
Tel.: +91-22 4002 5508
[email protected]

Mangal Keshav Securities Ltd. 92,9th Floor “A” Wing, Mittal Tower, Nariman Point, Mumbai –400 021
 Mangal Keshav Securities

Summary Financials
Income Statement (INR mn) Balance Sheet (INR mn)
FY07 FY08 FY09E FY10E FY07 FY08 FY09E FY10E
Total revenues 20,431 23,611 27,129 30,952 Cash & equivalents 607 766 861 673
% growth 18.6 15.6 14.9 14.1 Debtors 1,420 1,723 2,046 2,396
Cost of Sales 12,185 13,917 16,125 18,544 Inventory 2,571 3,025 3,725 4,475
SGA 4,814 5,657 6,479 7,319 Others 1,807 2,225 2,569 2,979
EBITDA 3,432 4,037 4,526 5,089 Total Current Assets 6,405 7,739 9,201 10,524
% growth 18.0 17.6 12.1 12.4 Current Liabilities 4,518 7,321 8,233 8,755
Depreciation 343 364 398 456 Net Working Capital 1,887 418 969 1,768
EBIT 3,090 3,672 4,128 4,633 Other assets 213 380 338 308
Interest 154 168 123 103 Investments 807 2,037 2,037 2,037
Other Income 166 237 319 358 Net Fixed Assets 3,792 4,653 5,627 7,103
EO Items 93 103 0 0 Total assets 6,698 7,488 8,970 11,217
EBT 3,101 3,741 4,323 4,889 Other Liabilities 304 320 320 320
Tax 373 507 584 624 Debt 1,599 992 500 500
Minority Interest (9) (1) (1) (1) Shareholders’ equity 863 864 864 864
Reported PAT 2,830 3,339 3,741 4,266 Reserves 3,933 5,312 7,286 9,533
Adj. PAT 2,751 3,251 3,741 4,266 Total networth 4,796 6,176 8,150 10,397
% growth 22.3 18.2 15.1 14.0 Total Liabilities 6,698 7,488 8,970 11,217
Source: Company, Mangal Keshav Research Estimates Source: Company, Mangal Keshav Research Estimates

Cash Flow (INR mn) Ratio analysis (%)

FY07 FY08 FY09E FY10E FY07 FY08 FY09E FY10E
EBT 3,204 3,846 4,325 4,890 EBIDTA margin 16.8 17.1 16.7 16.4
Depreciation 290 263 354 421 Net profit margin 13.5 13.8 13.8 13.8
Tax paid (373) (507) (584) (624) Return on equity 56.3 59.3 52.2 46.0
Chg in Def. Tax Liability 86 (212) 0 0 ROCE 44.3 47.7 46.7 43.1
Net working capital (1,440) 1,628 (454) (988) Inventory (days) 87 91 92 93
Operating cash flow 1,767 5,019 3,641 3,699 Payable (days) 68 81 90 88
Capital expenditure 1,043 (1,124) (1,329) (1,897) Receivables (days) 18 23 23 24
Investments (386) (1,230) 0 0 Net debt to equity (%) 33.3 16.1 6.1 4.8

Investing cash flows 657 (2,355) (1,329) (1,897)

Valuation parameters FY07 FY08 FY09E FY10E
Change in borrowings 556 (607) (492) 0
Dil. No. of Shares (mn) 863 864 864 864
Change in equity (1,613) (440) 0 0
Diluted EPS (INR) 3.2 3.8 4.3 4.9
Other financing activities 131 59 42 29
P/E (x) 28.5 24.2 21.0 18.4
Dividend paid (1,393) (1,516) (1,767) (2,019)
P/BV (x) 16.4 12.7 9.6 7.6
Financing cash flow (2,319) (2,505) (2,217) (1,990)
EV/ EBIDTA (x) 23.0 19.6 17.4 15.5
Net change in cash 105 159 96 (188)
EV/Sales(x) 3.9 3.3 2.9 2.6
Closing cash balance 607 766 861 673
Dividend Yield (%) 1.8 1.9 2.2 2.6
Source: Company, Mangal Keshav Research Estimates Source: Company, Mangal Keshav Research Estimates

Dabur India 2 30 JULY 2 0 0 8

 Mangal Keshav Securities

Core growth to slow down

Strong performance in few categories: We like the fact that
Overview
Dabur has more legs to defend growth during a slowdown
„ Excluding retailing, net sales expected to grow slower as compared to single-category companies. Most of Dabur's
at 13.7% CAGR over FY08-FY10E, versus 15% (excluding core brands have gained significant strength in the last few
Balsara) in FY05-FY08 years owing to the clearer brand architecture, adequate
marketing support, and dynamic management of the
„ Strong growth across key categories in FY05-FY08, but
categories. We have also seen the company gaining market
lagging FMCG peers over FY08-FY10E share and critical size in new categories like toothpaste and
„ Expect mixed impact of consumer downtrading shampoos.

„ Acceleration of Consumer Healthcare (CHD) growth, Growth Performance: Beating the market
new products and International Business (IBD) could
Market Share (%) Growth (%)
beat our growth expectations
(FY06-FY08)
Categories FY06 FY07 FY08 May 08 Category Dabur*
We expect Dabur's core revenue growth to slowdown to
Hair Oil 27.7 27.2 27.2 27.8 17.2 13.0
13.7% CAGR over FY08-FY10E period, as
Toothpaste 7.0 7.9 9.4 9.6 12.3 20.6**
„ growth returns towards medium-term trend Shampoo 4.8 4.8 5.1 5.7 13.3 28.0
growth in a slowing economy, Chywanprash 57.5 59.9 60.0 59.0 8.9 9.4

Source: AC Nielsen, Mangal Keshav Research, * as reported by Company,** only Dabur Red Toothpaste
„ and enhanced competition constrains market share
growth. Slow down to impact sectoral growth
Acquisition of Balsara added 475bps to the FY05-FY08 sales We believe that consumer demand growth will decelerate
CAGR: Dabur reported 19.8% sales CAGR as compared to in the medium-term as economic growth slows down and
16.9% average growth reported by the 'big five' (HUL, ITC, inflation hurts purchasing power and encourages
Nestle, Asian Paints, Colgate) of the FMCG sector in the downtrading. Dabur was able to capture the strong growth
revival in the sector beginning 2005. However, Dabur's
FY05-FY08 period. Reported growth is inflated due to
relatively mature segments like hair oil, chywanprash, etc.
Balsara acquisition, which contributed 475bps to the core
will find it difficult to maintain the recent momentum if the
sales CAGR for FY05-FY08. Balsara was acquired by Dabur
overall demand falters and there is some downtrading.
towards the end of FY05, and has contributed around 10%-
12% of the consolidated sales in the last couple of years. Dabur to lag sector growth
We do not see Dabur's growth slowdown as a standalone
Growth to continue in low-teens case. The consumer sector is expected to slowdown over
35 (%) FY08-FY10E period. However, we expect to see average sales
30 CAGR of the 'big five' declining by only 60bps as compared
25 with Dabur's 200bps decline in this period.

20

15 Topline growth decelerating

10 Companies FY05-FY08 FY08-FY10E Change (bps)
5 Asian Paints 19.6 18.7 (90)
0 Colgate 15.2 13.2 (200)
FY09E

FY10E
FY05

FY06

FY07

FY08

HUL# 11.4 17.3 590

ITC 22.1 16.1 (600)
Standalone Consolidated* Nestle# 16.3 16.1 (20)
Source: Company, Mangal Keshav Research Estimates, *excluding retailing Average 16.9 16.3 (60)
Dabur 15.0* 13.0** (200)
FY07- Balsara merged with DIL; FY08- Dabur Foods merged with DIL
Source: Company, Mangal Keshav Research Estimates; *Core, ** excluding retailing, #December year ending

Dabur India 3 30 JULY 2 0 0 8

 Mangal Keshav Securities

Downtrading- A mixed Blessing: Downtrading and limited Acceleration in CHD growth: The division has seen a sharp
pricing power will hurt most categories like hair oil, slowdown in the past two years after brisk pace of growth
shampoos and oral care. We have seen that in the last in the previous years before that.
consumer slowdown, even relatively less penetrated
CHD- Expected to come back strongly
categories like oral care and shampoos found it tough
growing. Together, these mature consumer categories 2500 (INR mn) (%) 45

contribute c.62% of the domestic sales of Dabur.

2000 35

Mixed impact of downtrading on Dabur 1500 25

Category Gain (+)/ Comments

1000 15
Loss (-)
Hair Oil - Unbranded and loose hair oils to gain 500 5
Shampoos + Brands at a discount to the market leaders
Chywanprash - Leadership with premium pricing could 0 -5

FY09E

FY10E
FY05

FY06

FY07

FY08
hurt
Oral Care + Benefiting from the popular pricing and
strong brands Sales Sales Growth (RHS)
Juices - Nectars and still drinks could gain share Source: Company, Mangal Keshav Research Estimates

Source: Mangal Keshav Research

Increasing competition across categories: Besides the Management has not met its growth objective for the
dominance of relatively mature (read slower growing) segment in the last two years. It attributed the slowdown
categories, we are also seeing a significant growth in to corrections in Supply Chain management, higher base
competition in key categories in the past few years. Small effect in a mature category, etc. It is now focusing on
niche and regional players have gained strength benefiting strengthening its new product introduction in the OTC
segment and improving visibility and prescriptions
from the rapid growth in the sector, media expansion and
generation in the ethicals portfolio. We have started to see
growth of modern retailing. Dabur is facing strong players
improved performance in the last couple of quarters. The
in categories like shampoos, toothpastes, hair oil, fruit juices,
company reported a strong 24.5% growth in Q1FY09. We
home care, while multiple players are expanding their
expect the segment to report 16.0% CAGR in the FY08-
presence in digestives, skin care, etc. We see such growth in FY10E period, helped partially by the low base.
competition hurting particularly more during slowdown,
when brand premium gets squeezed. International and Foods- the biggest growth driver: IBD
(including exports) and Foods, which contributed 27% to
What would drive growth? net sales in FY08 have been the biggest growth driver for
Dabur in the past two years. IBD grew at 39.5% in Q1FY09,
New product launches: We believe that new product
driven by strong performance in Egypt and African
development under various categories, especially, oral care,
markets. These segments have contributed almost 35% of
hair care and home care, should add incremental growth.
the incremental sales in the last two years.
We have seen the recently launched Vatika Black Shine Shampoo
add 0.5 pp to Dabur's shampoo market share. While the IBD and Foods- Higher contribution to sales
medium term sustainability of the incremental market 40
(%)
share will have to seen, we see enough opportunity for the
36
company to add brands and brand extensions. A new
brand, "Dazzl", has been launched 12 years after Real was 32
launched. We would await the performance of this brand;
however, we find the addressable opportunity quite sizeable 28

and growing at a brisk pace.

24

We could see some failures too, as we have seen in the case 20

of Vatika soaps and Coolers range of fruit drink, where Dabur
FY09E

FY10E
FY06

FY07

FY08

has not met with desired success. The company has almost
withdrawn these products. Incremental Total
Source: Company, Mangal Keshav Research Estimates

Dabur India 4 30 JULY 2 0 0 8

 Mangal Keshav Securities

Despite the base impact, additional focus on foods extension Moving production to backward areas helping margins:
and exploitation of foreign markets like Egypt, Middle East, Dabur's gross margin has expanded 135bps in the FY05-
etc. would maintain momentum in the medium-term. IBD FY08 period driven primarily by lower effective excise duties
growth could, however, be hurt by adverse rupee movement and better material management. Increase in insourcing
as seen in Q1FY09. We expect the management to drive from backward areas with fiscal benefits has brought down
portfolio expansion in Foods to reduce dependence on just effective excise duties. Effective excise duty has declined
juices, as juices are facing higher competitive pressure and 155bps in FY05-FY08 period.
supply chain issues.
Declining effective excise tax helped margins
Core OPM to stabilise at 17.0% 6.0 (%)

Overview
„ Core OPM expected to stabilize around 17.0%, core 4.0
operating profits to grow at 14% CAGR over FY08-
FY10E.
2.0
„ Gross margins to decline 40bps in FY09E to 53% in
FY09E and FY10E. Foods margin expected to improve.

„ Marketing spend to remain high on account of 0.0

FY04

FY05

FY06

FY07

FY08
aggressive new product launches

Source: Company, Mangal Keshav Research

We expect core operating margins to stabilize at current
levels of c.17.0% for the next couple of years, as gross margins
As a percentage of gross sales, material cost has improved
come under pressure along with higher marketing spend 60 bps in the FY05-FY08 period. Dabur has effectively used
needed to defend growth. Dabur's operating margin has long only futures positions and offsetting derivatives to
expanded 200bps over FY05 levels to 17.1% in FY08 led by contain inflation close to zero inflation environment where
improvement in gross margins. Core operating profits will possible.
report 14.0% CAGR over FY08-FY10E, while reported
operating profits will grow at 12.3%. Gross margins to decline 40bps in FY09E
We are building in 40bps lower gross margin for FY09E
Operating margins to hover in a narrow band and FY10E compared with FY08, owing to severe pressure
on few input materials including packing, molasses, copra,
18.0 (%) (%) 53.6
etc. The impact of inflation is higher in international markets,
17.0 53.2
which have seen sharp decline in gross margins for Q1FY09.
Dabur has reduced its forward buying due to uncertain
16.0 52.8 outlook on key materials and some decline in crude oil prices
in the last one month.
15.0 52.4
Higher packaging cost: We highlight that gross margin
14.0 52.0 improvement in the past has been despite a jump in
FY09E

FY10E
FY05

FY06

FY07

FY08

packaging cost as % of net sales, which has risen from 12.6%

in FY05 to 16.4% in FY08. However, the impact of significant
Core OPM Gross Margin (RHS) increase in crude oil price on packaging cost, single largest
input material for Dabur, is expected to hit gross margins.
Source: Company, Mangal Keshav Research Estimates
Management has indicated that all packing materials,
including glass bottles, PET, laminates, etc. have seen
significant inflation in the year.

Dabur India 5 30 JULY 2 0 0 8

 Mangal Keshav Securities

Packing cost - Critical to Margins Retailing- Diluting financials

40 (%) Overview
„ Retailing sales expected to grow from INR 90mn to INR
30 1.0bn between FY09E and FY11E, contributing 3.0% to
overall sales by FY11E.
20
„ Cumulative net losses to stand at INR 495mn, with 50-
10 80bps adverse impact on OPM. Management guidance
of INR400 mn losses over three years
0
„ Financial ratios to be marginally impacted due to
FY04

FY05

FY06

FY07

FY08
investments in retailing segment.
as % of Net Sales as % of material cost
„ EPS growth to slowdown to 14.5% over FY08-FY10E
Source: Company, Mangal Keshav Research

Pricing power to reduce: Most domestic FMCG firms have Dabur's retailing initiative, under the new brand 'new u',
been taking price hikes in line with underlying inflation in has seen seven stores opening in the last few months. We
the last two years. The headroom for such price hikes has expect the segment to contribute around 3% of turnover by
got significantly squeezed as inflation is beginning to hurt FY11E, as revenue grows from INR 90mn in FY09E to INR
consumption. Inflation has been even stronger in the 1.0bn in FY11E. Current stores are around 1,600sq.ft on an
international markets, where gross margins have declined average with planned store size going to be smaller than
almost 400bps in Q1FY09. 1,000sq.ft. It would take the management a year with
around 10-15 stores in operation to get a sense of the
This pressure would be offset by relatively less inflation in
profitability, location-mix, merchandise-mix, etc.
juices and other raw materials as well as 7%-8% weighted
Management has guided that most of the store roll-out
average price hike that the company intends to take in the
would be back-ended towards FY11E. We believe that the
domestic markets through the year. In Q1, overall price hike
likelihood of declining rental cost alongwith inexperience
was to the tune of 3.5%.We expect Dabur's brand equity to
in retailing will make the management go slow.
give it pricing power over its competition, but could still be
constrained by slowing demand. Net losses spread out longer in retailing

Marketing spend to remain high: Margin pressure not Management has budgeted for accumulated net losses of
withstanding, we see higher adspend/net sales of 13.0% for INR400mn between FY08-FY10E and breakeven in FY11E.
both FY09E and FY10E to support higher level of planned We have factored in accumulated net losses of INR 495mn,
marketing activities. Dabur is looking to roll out nationally with a breakeven only after FY11E, factoring in slower store
Dazzl, continue supporting new extensions in oral care and area addition and lower operating margins. The segment
shampoos and the new drinks brand to be launched in reported operating losses of INR 49mn in Q1FY09. On a net
Q3FY09 (new brand structure focusing on 'Real' umbrella) in basis, the stores lost INR 20mn for the quarter. Management
FY09E. Besides, there have been renovations in a significant has guided that there would be no benefits of deferred tax
portion of its portfolio, which entails supply chain issues on retailing losses immediately.
as well as lumped media activities. The company will also
have to support the CHD revival, which has just started to
come back on track.

Dabur India 6 30 JULY 2 0 0 8

 Mangal Keshav Securities

company to report EPS of INR 4.3 and INR 4.9 in FY09E and
Retailing losses: Management vs. our estimates
FY10E, respectively.

FY09E

FY10E

FY11E
FY08 Lower than consensus growth estimates: Our earnings
0
estimates are lower compared with the street consensus
(40) by around 5%-7%. The consensus EPS CAGR is 17% over
FY08-FY10E period, as compared to our 14.5%. The difference,
(80)
we feel, could be attributed to higher retailing losses and
(120) lower gross margin that we expect.

(160) Lagging consensus estimates

(INR mn) Sales (INR bn) EPS (INR)
(200)
FY09E FY10E FY09E FY10E
Management Mangal Keshav
Mangal Keshav 27.1 30.9 4.3 4.9
Source: Company, Mangal Keshav Research Estimates Consensus 28.3 33.1 4.5 5.3
Difference (%) (4.1) (6.5) (4.7) (7.3)
Operating losses in retailing business will pull down
Source: Company, Mangal Keshav Research Estimates
Dabur's operating margins by 50bps in FY09E and 80bps in
FY10E. We rate the stock Neutral

Retailing losses pulling down operating margins Target price of INR 99: Dabur is currently trading at a PER
INR mn FY08 FY09E FY10E
of 18.4x and EV/EBITDA of 15.5x on a FY10E basis. On a 1-
Net Sales year rolling forward basis, it is trading at a PER of 19.8x
Core 23,611 27,039 30,521 and EV/EBITDA of 16.4x. The stock has recently moved
Retailing 0 90 431 below its two-year rolling forward average PEG (2-year
Overall 23,611 27,129 30,952 forward) of 1.9x and is currently trading at 1.5x. We believe
Operating Profits
that multiples could compress a little further from current
Core 4,108 4,643 5,248
levels. Using a PER of 20x FY10E EPS, we arrive at our target
Retailing (71) (116) (159)
Overall 4,037 4,526 5,089 price of INR 99 to be achieved over a 12-month period. This
Operating margin (%) implies a rolling PEG of 1.3x. We are not using sum-of the-
Core 17.4 17.2 17.2 parts valuation for the core and retailing business, as the
Retailing NA (129.3) (36.9) retailing business is quite nascent. The stock has a FY09E
Overall 17.1 16.7 16.4 dividend yield of 2.3%, little lower than its FMCG peers.
Source: Company, Mangal Keshav Research Estimates

Multiple compression justified for the current outlook:

Dilutive impact on return ratios: Dabur will invest INR1.4bn Valuation multiples are lower than those commanded by
in equity over three years for its retailing venture. We see the stock until recently, but quite in line with their 5-year
the total investment in the segment going up from around averages. We believe that the recent compression in
INR200mn in FY08 to INR1.6bn, with a FY11E D/E of 0.15 valuation multiple can be justified by the expected impact
for a total store area of 0.1mn sq.ft. Investments in retailing of retailing business (on capital efficiency and earnings
business will adversely impact RoCE by 160-190bps in growth), slower core earnings growth and decline in
FY09E and FY10E. On the RoE front, we expect dilution of shareholder spread. The stock's premium over Sensex at
180bps and 210bps in FY09E and FY10E, respectively. around 40% is in line with that witnessed in the last two
years.
EPS CAGR slowing to 14.5% for FY08-FY10E
We estimate the earnings growth to slowdown to 14.5%
over FY08-FY10E from 20.2% in FY06-FY08 period. We
would like to highlight that estimated growth of the core
earnings (excluding retailing) for the same period would be
a little higher at 15.7% with retailing loss per share at around
INR 0.15 in FY09E and INR 0.2 in FY10E. We estimate the

Dabur India 7 30 JULY 2 0 0 8

 Mangal Keshav Securities

PER: Moving down into lower bands Stock performing in line with Sensex
140
(INR) 150
120 28x
140
100 130
22x
80 120
16x
110
60
10x 100
40
90
20 80
0 70

May-08
Sep-07

Nov-07

Mar-08
Jul-07

Jan-08

Jul-08
Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08
Dabur (Rebased) Sensex (Rebased)
Source: Capitaline, Mangal Keshav Research Estimates Source: Capitaline, Mangal Keshav Research

PEG dipping below the rolling average Shareholder spread (RoE-CoE ) to decline

2.5 (x) 70.0 (%)

2.0 60.0
50.0
1.5
40.0
1.0
p 30.0
0.5 20.0

0.0 10.0
Jul-03

Jul-05

Jul-07
Mar-04

Mar-06

Mar-08
Nov-04

Nov-06

0.0
FY06 FY07 FY08 FY09E FY10E

S pread RoE CoE

Rolling PEG 2-yr Average

Source: Capitaline, Mangal Keshav Research Estimates Source: Capitaline, Mangal Keshav Research Estimates

Relative Valuation- Looks a little costly on peer comparison

Companies Price (INR) 2-yr EPS P/E (x) EV/EBITDA (x) ROCE ROE Div
CAGR (%) (%) (%) Yield(%)

FY08-FY10E FY08 FY09E FY10E FY08 FY09E FY10E FY08 FY08 FY09E
Asian Paints 1,150 18.0 26.3 22.0 18.9 16.8 14.0 12.0 34.4 40.4 1.7
Colgate 372 15.7 23.4 19.5 17.5 21.1 18.3 16.2 108.9 97.4 3.9
Dabur 90 14.4 23.8 20.7 18.2 19.2 17.0 15.2 48.6 53.4 1.9
Hindustan Lever 220 19.2 28.8 23.3 20.3 22.3 18.5 15.9 78.8 117.1 3.3
ITC 190 13.4 22.6 20.3 17.6 15.0 13.3 11.2 26.0 25.6 2.0
Nestle 1,594 19.1 36.2 29.0 25.5 21.9 18.0 15.9 97.3 101.5 2.6
Average 16.6 26.9 22.5 19.7 19.4 16.5 14.4 65.6 72.6 2.6

Source: Company, Capitaline, Mangal Keshav Research Estimates

Dabur India 8 30 JULY 2 0 0 8

 Mangal Keshav Securities

Risk About the Company

„ Lower than expected losses in the retailing business : Dabur India Ltd. is India's leading household and personal
We believe that the street is focusing on the retailing products company with a strong association with
initiative disproportionate to its contribution to either Ayurveda. The company has expanded its product portfolio
topline or bottomline. We have seen most retailing in the last few years moving beyond the core proposition of
companies in the last 12 months adding space at a Ayurveda to more mainstream platforms in personal care,
slower pace that their historical averages. Likelihood foods, household care in both India as well as outside India.
of falling rentals and real estate prices, better While it organically entered new categories like shampoos,
availability of space and, in some cases, access to capital soaps, surface cleaners, etc. it acquired Balsara in 2005 to
could be driving a considered expansion currently. In strengthen its presence in toothpastes and home care
case the pace of retailing expansion changes, there could products like mosquito coils and repellants, etc. The
be some impact on earnings. company has set a strategic objective to double its FY07
„ Inorganic acquisition: We believe in the entire turnover by FY11E. The promoters, who hold 71% stake in
consumer space, Dabur has best used acquisition as a the company, have diluted their role in the management of
growth lever. The acquisition of Balsara not only added the company as career professionals have been managing
more growth categories to its portfolio, but also left the company quite well over the past 5-6 years.
significant synergies on the table to be leveraged.
Balsara’s performance since it’s acquisition has been
quite exemplary, and hence, any further acquisition
could be a positive trigger.

„ Abatement in inflationary environment: The key

assumption that has led to slower earnings growth
expectation for Dabur is the current inflationary
environment. Any let up in commodity prices,
especially crude derivatives, could be margin and
earnings positive.

Dabur India 9 30 JULY 2 0 0 8

 Mangal Keshav Securities

Disclaimer:

©2006 Mangal Keshav Securities Ltd. All rights reserved.

This material is for your private information, and we are not soliciting any action based upon it . Transactions involving stocks and derivatives give rise to substantial risk and are not suitable for all investors.
The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are our current
opinions as of the date appearing on this material only. We and our affiliates, officers, directors, and employees , including persons involved in the preparation or issuance of this material may, from time
to time, have long or short positions in, and buy or sell, the securities, or derivatives (including options) thereof ,of companies mentioned herein. For more information contact Mangal Keshav Securities
Ltd. at 91-22 4002 5511 or mail at [email protected]

Dabur India 10 30 JULY 2 0 0 8