Intraday Tips
Published on Tuesday, November 10th, 2009 at 11:39 AMAuthor: insightt95in (170 Articles)
• Dabur India (Current Price Rs153, Target Price: Rs177; Buy)
– We forecast sales growth of 20% in F10E & 17% in F11E. F10E sales growth of 20% is premised upon: (a) 13-
14% growth in domestic portfolio (ex-Fem) vs F09’s 14.8%, (b) c.30% growth in international business vs
F09’s 40%, (c) Newly acquired Fem portfolio adding 3% to overall sales growth. For F11E, we expect
international sales growth to slow further to c.25%, 50% increase in Fem sales (first full year of operation) &
domestic growth (ex-Fem) being maintained at c.13%.
– We project c.130bps EBITDA margin expansion over F09-12E to 19% to lead an earning CAGR of 19.5%. Our
EPS estimates for F10E, F11E & F12E are Rs5.5, Rs6.6 & Rs7.7 respectively.
– We value Dabur on the basis of a target PEG of c.1.2x (20% discount to HUL’s c.1.5x) & 19.5% earnings CAGR
over F09-12E.
• Asian Paints (Current Price Rs1685, Target Price Rs1763; Buy)
– Volume growth for 2QF10 estimated to be c.20%. This is yet the strongest volume growth since the company
reported a flattish volume in Oct-Dec’08 period. Current quarter’s c.20% volume growth follows 10%-13%
volume growth witnessed in past two quarters.
– Earnings estimates: We expect consolidated sales growth of 11% (entirely volume led) and 15% (12% volume,
3-4% price) in F10E & F11E respectively. We forecast international sales growth slowing from c.28% witnessed
in F09 to c.13-14% over next few years. We project 260bps EBITDA margin expansion for full year F10E
(softening input costs & flowthrough of excise rate cut benefits) to lead to a 36% like-to-like EPS growth in
F10E. For F11E, we project flattish EBITDA margin & 17% EPS growth. We estimate EPS of Rs56.1, Rs65.4 and
Rs77.7 for F10E, F11E & F12E respectively.
– Our target price of Rs1763 is based on PEG of c.1x, c.24% earnings CAGR over F09-12E.
• Hindustan Unilever (Current Price Rs273, Target Price: Rs280; Hold)
– Sales below expectation in 2QF10 but after a disappointing margin performance in 1QF10, HUL finally benefited
from a lower input-costs regime. 230bps increase in adjusted EBITDA margin in 2Q was a result of 330bps input
cost-benefits & significant savings in distribution/logistics related costs, which drove a 9% fall in ‘other
expenditure’.
– We build in a 110bps EBITDA margin expansion in F10E as our input costs analysis (based on existing costs
environment & price adjustments undertaken/expected) suggests a likelihood of c.180bps YoY gross margin
expansion; we forecast c.8% & 11% sales growth in F10E & F11E respectively & associated adjusted profit growth
of c.12% in F10E & c.15% in F11E.
– We value HUL on a target PEG of c.1.5 and an estimated 13.5% earnings CAGR between F09-12E.
• ITC (Current Price Rs249, Target Price Rs300; Buy)
– We forecast 19.6% EPS growth in F10E based on our projection of 6.5% cigarettes volume growth, FMCG losses in
the range of Rs0.9-1bn per quarter in 2H and c.42% YoY decline in Hotels EBIT.
– While investors may start worrying about likely tax-changes again as we near Budget 2010, we deal with it by
building in an increase in share of higher-VAT states from current c.13% to 40% in F11E & 100% in F12E in our
forecasts, implying an average VAT rate of 15.5% and 20% in F11E and F12E. This would necessitate c.7%-10%
price hikes in F11E/12E; we project cigarettes volume growth of 5% in F11E & 2% in F12E. Our EPS forecasts for
F10E, F11E & F12E are Rs10.5, Rs12.0 & Rs13.7 respectively, implying a c.16% CAGR over F09-12E.
– We value ITC using a target PEG of c.1.5 & estimated 16% earnings CAGR between F09-12E.
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