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Mixed quarter, Stable outlook
Dabur Ltd reported mixed set of numbers for Q4FY19, wherein its revenue grew by 4.7% yoy, while its gross margin declined by 94bps due to rise in raw material cost. Further, its EBITDA and PAT margin contracted by 238bps and 209bps, respectively due to higher employee cost, other expense and one-time loss of currency depreciation. We believe the company would continue to face some slow-down in demand in the near term. Notwithstanding near term challenges to growth, we remain positive on the company’s medium to long term growth prospects on the back of innovating new products across segments, re-launching its products and gaining market share. We maintain a BUY on the stock with price target of Rs 492.
Q4FY19 Result Update:
* Dabur posted overall revenue growth of 4.7% yoy to Rs 2,128 cr, wherein its domestic FMCG revenue grew by 5.9% yoy, driven by volume growth of 4.2%. We believe the company could have posted better numbers, but growth was impacted by demand slowdown and prolonged winters among its Hair-care & Foods segments. Further, its international business reported marginal growth of 1.9% yoy, due to consumption slowdown in MENA market and currency devaluation. For FY19, Dabur posted revenue growth of 10.1% yoy to Rs 8,533 cr. Its domestic business grew by 13% yoy, led by volume growth of 11% and market share gain in key brands, however, on the other side its international business grew by 6.5% yoy, impacted by currency de-valuation and underperformance in key markets.
* Dabur’s gross profit improved by 2.7% yoy, while its gross margin declined by 94bps yoy to 49.8% due to increase in raw material expense (+6.7% yoy). The company’s EBITDA de-grew by 5.8% yoy & margin contracted by 238bps yoy to 21.5% because of rise in employee cost (+33.8% yoy). Further, its PAT remained under pressure and declined by 6.5% yoy due to one-time exceptional item of Rs 75.3 cr pertaining to currency fluctuation. Its PAT margins declined by 209bps yoy to 17.5%.
* Key Concall highlights: 1)Management expects a revival in demand scenario which would help them to focus on increasing distributing channel in both rural and urban areas, launching new products by investing behind brands and maintain market share across its key brands and strengthening portfolio by revamping products. Further they expect margins to remain stable. 2) Healthy growth was witnessed among power brands like Dabur Honey, Lal tail, Honitus, Pudin Hara, etc, while Babul and Namaste business remained subdued during the quarter.
Outlook & Valuation:
The Indian Consumer sector has grown at a CAGR of 10-12% over 2012-18 and is expected to grow on similar lines on the back of rising income levels, changing lifestyle, and products availability. In the last few years, the ayurvedic products in consumer health care segment have been gaining traction driven by youth’s changing preference, introduction of new products among players, government’s efforts toward promoting ayurvedic products and awareness about harmful effects of chemicals & allopathic medicines. We believe, Dabur is well placed to capitalize on this opportunity and hence we estimate its Revenue, EBITDA & PAT to grow by 11.5%, 13.2% & 14.0% CAGR respectively over FY19-21E on the back of positive sector outlook, revival in demand, focus towards building brands, increasing distribution reach and maintaining market share among its key brands. We maintain a Buy on the stock with target price of Rs 492.
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