Dabur: All-round performance

Strong show aided by growth in key consumer segments.

Dabur India reported a 20.1 per cent y-o-y growth in its consolidated top line during the March 2007 quarter, thanks to an all-round improvement across most of its segments.

However, cost pressures, mainly in raw materials, pushed operating profit growth lower at 18.2 per cent. Nevertheless, the decline in operating margin of 104 basis points to 15.3 per cent looks good when compared to a 210 basis point rise in raw material cost as a percentage of sales y-o-y in Q4. Also, ad spend increased by 190 basis points during the quarter to 11.3 per cent of sales.

For the full year, though the raw material costs increased by 95 basis points, the operating margin improved by 30 basis points to 15.7 per cent.
Dabur had taken price hikes in few of its products like hair oil and shampoo, but these increases could not neutralise the entire impact of higher raw material prices. The Dabur management attributes a tighter control on fixed costs, which helped in maintaining margins.

In terms of categories, revenues in its key segment of consumer care grew 16.7 per cent during FY07, aided by strong growth in shampoos, health supplements, home care, foods and international business.

The foods business, which is still small, grew 29 per cent. The growth in consumer health division was muted, mainly due to a rationalisation exercise.

Going forward, there should be some benefits of the price hike in the past quarters and another price increase in hair oil over the next few weeks.

Dabur will be investing Rs 140 crore in the retail business, which will take time to earn returns for shareholders. At its current price, the stock trades at about 23-24 times estimated FY08 earnings, with little room for upside.

GlaxoSmithKline: Hit low by base effect

The performance of the key pharma division for GlaxoSmithKline Pharmaceuticals was adversely affected in the March 2007 quarter by a high base effect in the previous period.

As a result, the company's operating profit grew 4.3 per cent y-o-y to Rs 162.15 crore in the March 2007 quarter, compared with a 0.4 per cent fall in its total operational income (including other income for clinical research done for its parent) to Rs 438.57 crore.

Other income for the company amounted to Rs 17.11 crore in the March 2007 quarter, a y-o-y growth of 19.2 per cent. However, the results of the March 2007 quarter are not strictly comparable with a year earlier, given the sale of its animal health business on July 31, 2006 for Rs 207 crore to Virbac.

Nevertheless, its operating profit margin grew 170 basis points y-o-y to 37 per cent in the last quarter. In its key pharma division, segment revenues grew 5 per cent y-o-y. In case of Pfizer, its margin had declined 147 basis points y-o-y to 26.6 per cent in the February 2007 quarter.

Going forward, Glaxo is expected to launch vaccines and other medications like anti-hypertensive carvedilol. However, with the stock trading at 24 times estimated CY07 earnings, there is little room for further upside.

Apollo Tyres: Riding high

Apollo Tyres, like other players in the industry, reported an improved performance in the March 2007 quarter, despite higher rubber prices on a y-o-y basis.

As a result, the company's operating profit grew an impressive 77.1 per cent y-o-y to Rs 100.4 crore in Q4 FY07, as compared with a 22 per cent growth in net sales to Rs 910.2 crore.

Its operating profit margin also grew 340 basis points y-o-y to 11 per cent in the last quarter. MRF's operating profit margin also improved 300 basis points y-o-y to 9.3 per cent in the March 2007 quarter.

Spot rubber prices in the last quarter averaged Rs 95 per kg levels as compared to an average price of Rs 78.4 per kg in Q4 FY06, say analysts. To Apollo Tyres' credit, its adjusted raw material costs as a percentage of net sales declined 220 basis points y-o-y to 67.1 per cent in the last quarter.

Apollo had hiked passenger car tyres by 2 per cent in February 2007, in addition, senior company officials highlighted hedging and allied techniques to counteract higher rubber prices.

MRF's adjusted raw material costs as a percentage of net sales also remained more or less flat on a y-o-y basis points at 70 per cent in the last quarter.

Meanwhile, Apollo Tyres' consolidated OPM grew 40 basis points y-o-y to 9.2 per cent in the last quarter. Going forward, the direction of rubber prices will be a key determinant of the company's profitability. The stock is fairly valued at 11.4 times FY07 earnings.