Dabur: Food for thought

Rising disposable income bodes well for FMCG player Dabur

Dabur has posted a revenue growth of 24 per cent for FY06 at Rs 1852 crore, driven by 46 per cent y-o-y increase in its foods business.

This is on top of an 18 per cent growth in FY05. Thanks to stable raw material prices and fiscal sops from the Uttaranchal unit, the company managed a higher operating profit of Rs 291 crore, a rise of 38 per cent and thus an increase in operating profit margin to 15.7 per cent, and a 200 basis point rise y-o-y to 15.7 per cent.

While the company's main businesses of health supplements and hair oil would continue to show high single-digit growth, other segments such as foods, consumer health care, oral care and skin care will grow much faster.

Besides, Dabur is also eyeing inorganic opportunities in food and healthcare, now that the operations of Balsara, which it had taken over, have turned around.

Thus, Dabur will have a strong portfolio of products for which there should be strong demand, given rising disposable incomes and aspiration levels.

At Rs 156, the stock trades at over 32 times estimated FY07 earnings and nearly 24 times FY08 estimated earnings. With earnings expected to grow at 18-20 per cent in the next couple of years, the valuations more than capture the upsides.

However, given that the company will have accruals of Rs 250-300 crore every year, with not too much capital expenditure lined up, there are chances that it could utilise surpluses to make acquisitions. To that extent, the stock does have some more steam.

Shopper's Stop: Private labels pay off

The key takeaway from Shopper's Stop March 2006 quarter results is that its sales growth has been buoyant, and its emphasis on higher margin private labels has paid off.

Operating profit grew 72.3 per cent y-o-y to Rs 12.34 crore in the last quarter, helped by like-to-like sales expanding 21 per cent y-o-y to Rs 154.8 crore, coupled with a 7.7 per cent improvement in sales per square to Rs 1834. For FY06, the company's operating profit expanded 49.2 per cent y-o-y to Rs 48.9 crore.

Shopper's Stop is focused mainly on lifestyle retailing with apparels contributing 59 per cent to its turnover in the last quarter.

Within the lifestyle segment, the store has once again expanded the proportion of private labels in its total sales mix, to boost margins.

For instance, private labels accounted for 19.4 per cent of sales last quarter compared with 18 per cent in the corresponding period of the previous year.

As a result, operating profit margin grew 137 basis points y-o-y to 8.08 per cent in the March 2006 quarter. For FY06, the company's operating profit margins grew 44 basis points to 8.31 per cent.

The company is ramping up its presence across the country and given the investor euphoria for the retail sector, the stock trades at about 51 times estimated FY07 earnings.

Aventis: On a sound footing

Like other multinational pharmaceutical companies, which derive a large proportion of their income from the domestic market, Aventis Pharma too reported an improved March 2006 quarter result.

Its operating profit (excluding other income and treasury income) grew 27.1 per cent y-o-y to Rs 50.2 crore in the last quarter compared with 15.16 per cent growth in net sales to Rs 200.5 crore.

However, in the current rally on the bourses, the stock has lagged the broader market. The stock has gained nearly 17 per cent over the past three months compared with 27.93 per cent gain in the Sensex.

Domestic sales went up 26.1 per cent y-o-y to Rs 153.5 crore in the last quarter, helped by higher demand in product segments such as cardiovascular, vaccines and oncology, say analysts.

However, exports fell 10.3 per cent y-o-y in the last quarter to Rs 47 crore. Apart from a pick-up in sales, the company was also able to maintain a tight check on key material costs.

For instance, adjusted material costs as a percentage of net sales fell 98 basis points y-o-y to 47.38 per cent in the March 2006 quarter.

As a result, operating profit margin grew 235 basis points to 25.03 per cent in the March 2006 quarter.

Earlier, GlaxoSmithkline Pharma had seen its operating profit margin rise 744 basis points y-o-y to 35.29 per cent in the March 2006 quarter. The stock trades at 25.6 times estimated CY06 earnings, which is not as high as Glaxo's 32-33 times.

With contributions from Shobhana Subramanian and Amriteshwar Mathur