KARVYiIIl Oe October 18,2012 Dabur In Investment Rationale ‘Our investment argument is based on following pre 1. Multiple Business Sales Drivers 2. Significant Contribution from Recent Acquisitions 3. Expect 19% EBITDA CAGR in FY12-FYISE 1. Multiple Business Sales Drivers We believe that Dabur India is set to maintain its strong sales growth in coming years too on the back of multiple growth drivers, We expect the Company to clock 18% sales CAGR in FY12-15B owing to 16% sales CAGR in domestic business and 19% sales CAGR in global business. Dabur’s domestic business has shown slower growth in last few quarters largely due to muted performance of its rural business. However, with improved Monsoon and the roll-out of rural distribution initiative in ten states, we expect the Company to report better sales growth in rural business in coming period. Bh Cuepuies _ HeveueSules CAGRSalesGr Sales Gr S0SYEAGR ategories Mix (6) (FY09-12) (6) FYI2 (%6) QUFYI3 "a5 comments Domai a) (4) Cosine 58 maa Virco Ts 2 6010S Dabur maintaining song growth in he Hale ils ard hs shown average >20% growth in the past 4-5 quarters. Vatika franchise was affected in QUFYI3 due to price cuts by the competitors, We assume slower growth of Vatika in FYI3 which would result in 14% growth in Hair Oils in FY in the next three years, we expect 15.5% CAGR in Hair Oils Shampoo biz. was affected in FY12, while we expect Dabur should report good growth in FY13 due to corrective action taken to manage the rise in competition and lower base of FYI2, We expect 21% growth of Shampoo in FYISEm while expect =14.5% CAGR in FYI2-15E, Oral Care oa TOR «Od i T18 Historically also, Dabur has not been able to show healthy growth in oral care due to stiff competition from Colgate & HUL, Likely price growth can result into marginally better growth in coming years. Frealth Supp. en 162 Expect it o maintain growth momentum of previous years Skin Care a a 157 Gulabari franchise was under severe pressure in FYI2 due © strong local competition. Strong outlook of skin care category would also help Dabur in accelerating growth in coming years, ome Care 33S 162 Expect it to maintain growth momentum of previous years Digestive a 7 99) 8 10.6 Fxpectit to maintain growth momentum of previous years, OTC & Bihical 66 oe 82 BF 122 Expect it to maintain growth momentum of previous years. (B) Foods ee 25.7 Real & Active have been witnessing strong performance in the past several quarters. Better consumption of branded foods makes us optimistic for maintaining this high growth ‘momentum, going forward. (©) Others 48 International soo 484 2k 193 Regular foray into newer geographies and better growth prospect of Hobi & Namaste would maintain growth ‘momentum in global business in coming years. Source: Company, Karey bnstitational Research 63KARV Y ||| EEE Our View: High EBITDA margin of -17- 19% that Dabur witnessed in FYO7-FYIL won't be repeated in coming years, as we ‘expect higher contribution from the low EBITDA margin global business would cap the EBITDA margin at ~17% in FYI2- 15. (October 18,2012 Dabur India nificant Contribution from Recent Acquisitions Dabur's global business has been consistently showing higher double-digit growth due to regular foray into newer geographies and overseas acquisitions. Its recent acquisitions ~ Hobi Kozmetic (Hobi) & Namaste Group (Namaste) - have been integrated completely and their portfolios are being extended across geographies. We expect Hobi & Namaste would jointly contribute -13% of sales and ~11% of EBITDA in FYISE. Exhibit 6: Exhibit: Benefit Particular (Rs mn) FYISE Revenue Sales Ex Hobi & Namaste 5489464591 75,889 Yor Gr% 183, v7 w5 obi Sales (Rs mn) 162 1890 2,280 YoY Gr% Rs 158 180 Namaste (Rsmn) 62573638762 Yor Gr% 180 183 190 Total Sales 62750 738M 86,884 Yor Gre 183 7 w7 Operational Performance EBITDA (Ex Hobi & Namaste) [EBITDA Margin % (Ex Hobi & Namaste) obi EBITDA, EBITDA Margin % Namaste EBITDA EBITDA Margin % Total EBITDA, Consolidated EBITDA Margin % Sales contribution by Hobi and Namaste % EBETDA contribution by Hobi and Namaste % ‘Source: Company, Karvy Insttutionat Research, 3. Expect 20% EBITDA CAGR in FY12-FY15E Dabur India’s EBITDA margins were under pressure in the last few quarters on account of inflated input prices, acquisition of low EBITDA margin business and higher marketing spending for global operations. We are optimistic for better operational show by Dabur India going forward on the back of expected softening of key raw material prices and better EBITDAM from global business portfolio of especially of Hobi & Namaste. We expect the Company's EBITDA & Sales would rise by 20% CAGR & 18% CAGR in FYI2-FYISE. Exhibit 7: Dabur’s EBITDA Margin 190 180 v0 160 150 ys FY) FYIO. FYI]. FYI2.FYISE FYE FYISE MEEEBITDA Margin (%) Past 5 Years’ Avg EBITDA Margin (%)KARVYiIIl STOCK BROKING (October 18,2012 Exhibit 8: Key Assumptions Key Assumptions Sales Growth (%) Hair Oil Sales Growth (%) Shampoo Sales Growth (%) Oral Care Sales Growth (8) Health Supplments Sales Growth (%) SkinCare Sales Growth (6) Foods Sales Growth (6) [EBITDA margin expansion Effective tax rate (%) 203 150 0) na 200 155. 270 -8bps 20.0 FYR FYE 25 183 20 40 (290 wo 20 wo 170 6359 260290 22ibps bps 15200 Dabur India FYNE FYE v7 BS 155 mo 180 Bo 120 65165 wo 161 20 0 Tops bps 200 200 ‘Source: Company, Karey Institutional Research 6s