Dabur: “Chawyanprash” with characteristic of “Real” “honey”, improving quality with age

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Dabur India Q2FY21 conference call key takeaways

General

  1. Demand progression: in October has been good, E-Com sale events have been beneficiary Festive season to begin from mid-November (Diwali).
  2. urban growth: at 18% currently
  3. Channel growth: (i) E-Commerce (6% of sales v/s 2% YoY): +200%, (ii) Modern Trade: 1.6% (lower growth due to Future group related issues), (iii) CSD: (-) 25-30%, (iv) Cash & Carry: +10%
  4. Primary v/s secondary sales: growth at equal levels.
    Inventory levels of 24 days during early Covid period has been corrected to 15 days now. Company has adopted Continuous Replenishment System (CRS) which will reduced inventory days to 12.5
    5)RM, GPM: 50% dependence on Agri products which has seen significant inflation and company will take judicious prices increases in H2FY21 to mitigate the impact. Q2FY21 saw 100bps increase in GPM due to higher share of Chyawanprash sales and lower sales of Beverages.
  5. Ad-Spends: company will gradually increase going forward, aiming to be at 12% (by re-investing cost saving) of sales (in couple of years) from 8% (Q2FY21) currently. needed to create demand for each and every product and category that company is into currently
  6. EBITDA Margins: H2FY21 margins to be same YoY i.e. at 20%. (H1FY21: 21.9%), lower margins on account of higher Ad-spends, RM inflation and product mix (higher revenues from juices). from a medium-term perspective, company aims to maintain margins at current levels to ramp up ad-spends and drive higher revenue growth.

HealthCare (39.6% of domestic sales)

  1. Health Supplements: Chyawanprash grew 2x on low base. Q3FY21 has a high base but company is still witnessing YoY growth. Penetration levels currently at 3.5-4% (+100bps in H1FY21). Entry of more players (Marico most recently), will increase penetration and could be a good tailwind for the market leader i.e Dabur with ~60% market share.
  2. Capacity: company witnessed high demand for Chyawanprash, currently higher than company’s capacity. They are increasing capacity in Madhya Pradesh which will start production within next 3 months.
  3. Digestives: Hajmola performance was impacted due to low out of home consumption
  4. New Launches: (i) Dabur Honey immunity range, (ii) Dabur Amla Health juices range, (iii) Dabur Vedic Suraksha tea, (iv) Dabur single herbs range (v) Dabur Ayurvedic Nasal drops (vi) Dabur Himalayan Apple Cider Vinegar.

Home & Personal Care (47.6% of domestic sales)

  1. Oral Care: overall category grew by 5% with Natural toothpaste growing at 8%, as per Nielsen. Dabur Dandt Rakshak and clove recorded sales of Rs. 70mn and Rs. 20mn respectively. Company is continually gaining share in the category.
  2. Hair Care: company gained 10bps market share in Coconut hair oil while they lost 10bps share in perfumed hair oil category.
  3. Dabur Sanitize: Sanitizer sales and margins are declining with company registering Rs. 800mn in Q1FY21 and only Rs. 120mn in Q2FY21. This is on account of higher competition (MNC & Local players) and reduced usage by consumers sequentially.

Foods (12.7% of domestic sales)

  1. Beverages: grew by 6% if HORECA & CSD is excluded. Shift from carbonated drinks to juices is visible. Company gained 170bps market share in the category. Launched Real low calories juice this quarter. There is clear sequential improvement and company is confident of further recovery going forward.

International Business (27.6% of overall sales)

  1. Middle East (highest contributor): company expects H2FY21 to be better than H1FY21 as economic activity normalizes. It de-grew by 15% this quarter.
  2. Other geographies, growth: (i) Egypt: (-)3.3% (ii) Hobi: 31.3%, (iii) US Business: 14.6%, (iv) Nepal: 29.3%, (v) Bangladesh: 31.8%. Company is confident that these geographies will continue to deliver going forward.

Outlook: company has delivered the highest ever domestic volume growth of 16.8% this quarter. We like company’s focus and aggression in NPD’s coupled with using it as extensions to strengthen and leverage their core brands to grow it further. Management’s aim to increase ad spends to augment revenue growth in the medium term is encouraged as they are quite clear that this will not be at sacrifice of margin and profitability. We remain positive on structural developments taking place in the company.

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