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Dabur – Strong Q2 Sales + Margins

October 28, 2009

Dabur India reported Q2 PAT growth of 29% vs our estimates of 19% and consensus at 20%. The surprise was on account of higher gross margin expansion of 374 bps (our estimate 200 bps) as a result of benign commodity prices. Sales were up 22.7%, (volume growth of 14.2%) in line with street estimates. The company has invested substantially in supporting its brands, as a result of which ad spends are up 54%. EBITDA margin expanded 215 bps.

Excellent growth was visible across all the key categories: Consumer care business (including foods) registered growth of 17.2%, Consumer health division registered growth of 15.1%, and International business registered growth of 38.2%.

New Initiative of Dabur India – Focus to develop new price points by introducing below Rs10 SKUs to tap the rural consumer- viewed as a strategy to increase volumes
& maintain margins, in the current cost environment. New launches in skin care & fruit drinks should drive growth over the medium term.

Dabur is expected to report an EPS of Rs 5.9 and 7.20 for fy10 and fy11 as per Nomura with a target of Rs 181.

Citi expects Dabur to report an EPs of Rs 5.74 and 7.10 for fy10 and fy11 respectively.

HSBC expects Dabur to report an EPs of Rs 5.7 and 6.80 for fy10 and fy11 respectively with a Target of Rs 181.

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