Dabur Q4FY17 Concall Summary

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Key Financial Highlights

  • Sequential recovery in the India business post demonetization with domestic volume growth of 2.4%
  • Consolidated Sales for Q4 FY17 declined by 4.8% but flattish in terms of constant currency
  • Headwinds in the international business because Macro slowdown in MENA and currency devaluation in Egypt, Turkey and Nigeria
  • Domestic FMCG business reported 2.4% volume growth, up from‐5% decline in the previous quarter, there by witnessing sequential recovery
  • PAT for Consolidated business was flat while PAT in Standalone business reported a growth of 5.3%
  • International business reported a decline due to economics low downing GCC markets and currency impact
  • Operating margin improved by 118 bps and stood at 21.9% vs 20.7% in Q4FY16
  • Gross Margin for Consolidated business contracted by 168 bps due to increase in material costs and adverse currency impact
  • Operating Profit margin improved by 118 bps to 21.9% in Q4FY17
  • Advertisement & Publicity expense was at 6.4% in Q4FY17 as compared to 7.8% in Q4 FY16
  • Employee expenses reduced by 100 bps YOY due to reduction in variable payouts Cost control in overheads led to lower other expenses
  • Consolidated Sales for FY17 were at Rs.7680 crore, lower by 2.2% and flattish in terms of constant currency
  • Consolidated PAT for FY17 was Rs.1277 Crore implying growth of 2.1%
  • Gross Margin for Consolidated business improved by 100 bps due to benign input costs in H1FY17
  • Operating margin improved by 30 bps and stood at19.6% of sales in F17
  • Domestic FMCG segment contributed 71% to the Consolidated Revenue and reported a growth of 0.7% in value and 2.4% in volume
  • International business contributed 25% to the Consolidated Revenue and declined by 4.5% in constant currency terms
  • Due to sharp currency, the business suffered translation loss of around Rs. 79 crores
  • Shares remains constant at around 5%, which moves up by 15 bps - 20 bps up or down
  • Operating margins of juices were at around 14% which came down 11%
  • In terms of the employee cost, it has come down significantly in this quarter
  • Networking in juice category has helped to reduce the cost
  • Total indirect tax in the range of 16% to 17% where the excise exemption in Tejpur plant is not 100%, it is 56%, so therefore still 44% is going to be tax liability for the company. Now, of that 56%, as per the current understanding, 58% will be refundable 

Key product highlights

  • Toothpaste portfolio reported growth of 9% with Red Paste and Meswak leading the growth
  • Preference for Herbal and Ayurvedic Toothpaste continued to gain traction, as a result of which the company’s market share in the Toothpastes category went up by 100 bps over last year.
  • Hair Care reported a decline of ~4% on a high base of ~10% growth last year                  
  • Market share as reported by Nielsen showed improvement of 30 bps in Hair Oils
  • Skin Care post flattish growth during the quarter.
  • Gulabaric locked high single digit growth driven by modern trade activation sand relevant promotional inputs.
  • Innovations planned in Oxy, Gulabari and Fem brands
  • Healt supplements registered 5% growth In Q4FY17 led by strong growth in Chyawanprash
  • Glucose brand clocked good sales led by activations such as‘ Ab Daudega Hindustan'
  • Health Care recently launched the two products, ‘Honey Tulsi’ to build imunity and ‘Honey Ginger’ to cure cough and cold
  • 25% International business contributed to the Consolidated Revenue and 4.5% declined in constant currency terms
  • The company locked up MAT for next many years and there is some clarifications which are seeking in terms of the effective tax rate which be applicable post GST, there is some discussion going on with the revenue department
  • There was high inflation in the RM plus
  • As Vatika has been a little bit eroded, directionally this brand is shifting more towards the Ayurvedic platform
  • Shampoo has remained at around 5% but is currently at around 5.3% and initially it can take upto 10 with current strategy
  • The operating margins of juices which had come down to around 11%, they were typically at around 14%, they came down to 11%
  • In MENA headwinds, it is important for us to rationalize cost, particularly employee cost in the international business.
Dabur Q4 Financials

Key Operational highlights

  • Domestic FMCG segment contributed 71% to the Consolidated Revenue and reported a growth of 0.7% in value and 2.4% in volume
  • International business contributed 25% to the Consolidated Revenue and declined by 4.5% in constant currency terms
  • Material cost increased from 49.4% in Q4FY16 to 51.1% in Q4FY17 due to input price inflation and adverse currency impact
  • Domestic FMCG segment contributed 66% to the Consolidated Revenue and reported flattish growth in FY17.
  • International business contributed 30% to the Consolidated Revenue
  • International Business posted 4.5% decline in constant currency terms
  • Severe currency devaluation of ~55% in Egyptian Pound, ~20% in LIRA and ~36% in Naira led to translation loss in the international business
  • Local currency growth for Egypt was 19% and Nepal and Turkey recorded 16% growth in Local currency
  • GCC markets like Saudi & UAE were under pressure due to macro‐economic headwinds
  • However, market shares in most categories & countries remained stable to increasing
  • Volume growth of 2.4% in spite of high base (7% volume growth in Q4FY16) indicates a recovery in demand
  • Wholesale channel saliency is around 34% - 35% which can be reduced to 30 %-25%
  • Increase in sugar prices was another inflationary element
  • Major thing in juice is GST slab whose possibility is 18%, in which case the whole pricing situation could change very dramatically
  • In IndAS, a sharp increase in media can be seen, but also will be balanced out by lower spends on consumer and trade promotions which will not be visible
  • Fair amount of cleansing which has happened consequent to demonetization and now due to GST, which has been in a sense forced but had a positive impact in various ways
  • Market expanded considerably and particularly in toothpaste and honey
  • Being dependent on the ROI of wholesale and is also the dealers and the retailers, which have to be given a certain amount of return on investment
  • GST issues could depress the volume growth in the first half and on a lower base would be higher in the second half
  • Trade spends are around 5% - 6% and the combination is 40:60, in future it may probably reverse it to 60:40
Dabur Q4 Business overview

Capex

  • Dabur commissioned a new manufacturing facility in Tezpur, Assam in March’17 and settled with an investment of Rs.250 Crore
  • Tezzpur, Assam plant commissioned in March’17
  • The Tezpur factory is the largest production facility for Dabur across the globe
  • Entire range of Dabur's Ayurvedic Medicines, Health Supplements, Hair Oils, Shampoos, Toothpastes, Skin Care and Home Care products will be manufactured in this plant
  • Spread over 30 acres of land, this factory features fully automated processing lines and automated packing lines to optimize supply chain and quality management
  • With an energy efficient building and state‐ of‐ the‐art technology for effluent treatment the special focus has been given to the Environment. And the factory aims to contribute to Dabur's commitment towards Environment Sustainability.
  • Building a capacity in one of the plants which would be commissioned in Q3. It will be checked whether it does well at satisfactory margins, then aggressively can go into drinks market with south for being one of the best area.
  • Introduction of GMP initiatives into manufacturing units and there by controlled the expenses and improved the productivity
  • Reduction of incentives for employees is done which resulted the cost come down. 

Other highlights

  • Devaluations in some of the markets, particularly Egypt where the currency eroded by 55% YoY
  • The exact GST rates are yet to be announced which will determine the impact on each category and in the long-term GST will be beneficial for the organized FMCG players and are well-prepared for GST in terms of the internal IT framework and logistics architecture
  • Under IndAS all the other lines have been subsumed into revenue or into cost. which will probably show a sharp increase
  • Though JNN market in the South is small but is a big drinks market brand just launched in North called Ju.C and due to its capacity constraints, is not going to be very big initiative this year
  • Some of the benefits of non-compliance were passed on to channel members, retail and even consumer
  • Babool brand which is a very wholesale dependent took a knock, Anmol took a knock because of wholesale dependency.