We have a very healthy cash surplus of over Rs 3,800 crores: Dabur

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.6% higher at 9,979. The top gainers for Nifty 50 were Bajaj Finserv (+9.5%), Zee Entertainment (+9.1%) and Bajaj Finance (+8.2%) while the losing stocks for the day Coal India (-3.3%), Maruti (-1.9%) and BPCL (-1.4%). The gaining sectors for the day were Realty (+4.9%), Media (+3.3%) and Pvt Bank (+3.2%). FMCG (-0.7%) was the only losing sector for the day.

Edited excerpts of an interview with Mr Lalit Malik, CFO, Dabur India Ltd; dated 29^th May 2020 from Retail Economic Times:

• Volume growth has seen a decline of 14.6% in 4QFY20 for Dabur which was the lowest growth in 11 quarters. The growth was on track till February and the Company was ahead of other FMCG companies. However, in March, due to the sudden lockdown, there was a supply chain blockage and Dabur was not able to invoice which was due even in case of seasonal goods like juices, glucose etc. This caused a decline of 14.6% in the India FMCG business.
• For the juice and glucose categories, it was the peak season for the Company, given the summer setting in. If things were normal, Dabur’s growth would have been on track.
• The healthcare segment of Dabur saw a slow opening in the middle of April. With the launch of the sanitizer during this period, Dabur has gained momentum and things may have been much better.
• At present, though all manufacturing units are open, Dabur is working at 60-70% capacity. As far as the supply side is concerned with regard to the C&F as well as to the distributors, barring a few areas which are in the red zone and where there are restrictions with regard to supply, other categories including rural have returned to normal.
• Mr Malik added, E-commerce has been growing at the rate of more than 100%. There are different channels which are giving promising returns in the new normal. However, there are still some pockets which are in the red zone where there are some restrictions and Dabur is waiting for that to get normal so that they will be back to 100%.
• Dabur has a very healthy cash surplus which is more than Rs 3,800 crores. They don’t see any stress to their balance sheet or liquidity. The Company is being careful with regards to their working capital management as well as its operating cash flow.
• With 60-70% running capacity, the Company sees no major deviation with regard to their inventory pile-up or shortage because they are monitoring the demand and supply side very carefully. For example, their healthcare category is moving at a faster pace. In the case of Chyawanprash, the growth rate is almost 400%. Thus, Dabur has accelerated production and therefore they are able to meet the increase in demand. There are different pockets where the demand is increasing and therefore they have increased their production and supply.
• At present, the discretionary item demand is slow and this is where the Company is going slowly with regard to production so that they are able to manage the inventory and there is no loss of sale in case demand comes back.
• Dabur has extended its village coverage by 52,000 though the target was to reach 65,000 villages because of the lockdown, they were not able to expand.
• In the current scenario, there are two very important things according to Mr Malik:

1. It is very important to have healthcare products that they manufacture to be made available to people at large because that is a need in the country right now. Therefore, their focus is to have all their products like Chyawanprash, Tulsi drop, Haldi drop, Giloy etc., made available to the people as these are all immunity boosters.
2. On the hygiene and sanitiser front, their focus is to reach out. When volumes are affected, there would certainly be pressure on the margins. For that, they have undertaken a cost savings initiative under project Samridhi, where they are focussing on zero-base budgeting and questioning every line item of expenditure and addressing what is essential for them in the new normal scenario.

Consensus Estimate: (Source: market screener website)

• The closing price of Dabur India Ltd was ₹ 461/- as of 02-June-2020. It traded at 51.5x/ 44.8x the consensus EPS estimate of ₹ 8.9/10.3 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 463/- implies a PE multiple of 45.0x on FY22E EPS of ₹ 10.3/-.

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