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Asian Paints + Dabur Results Review

January 31, 2008

Asian Paints:ASPN is one of the best plays on domestic consumption demand in India and is firing on all cylinders – its domestic paints business is growing in excess of 20%, international business improvement is running ahead of management guidance. Potential duty cuts expected on raw material imports and price hikes are likely to drive margin expansion – management has indicated that a 1%-2% price hike is imminent.

ASPN’s domestic sales growth has been growing by 15%-25% over the last 8 quarters, demonstrating a strong improvement over the 10%-15% growth range earlier. Growth in the international business has also picked up, and margins have started to improve, driven by the Middle-East and South Asian markets. International business net margins are already in excess of 3%, ahead of management targets to achieve 3% in FY09E.

Dabur India:
Dabur 3QFY08 consolidated net profit growth of 19% was ahead of estimates; driven by a 14% sales growth. While flat EBITDA margins disappointed, sales growth was slightly ahead of estimates.

Foods and Consumer care division grew by 15%. In addition, consumer health business has shown improvement with growth increasing to 7%. Despite a 160bps reduction in raw material costs, margin were flat in 3QFY08 due to higher advertising and other expenses, mainly as other expenses were incurred for the H & B store rollout.

Dabur’s health & beauty stores are expected to start operations by March this year. Management has earmarked funds of Rs1.4bn over the next three years with a target RoE of 30-40%. Management is also working on expanding its skin care portfolio with some launches expected over the next 2-3 quarters.

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