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Another year of muted earnings/sales growth
Fair valuations cap upside
* Consol. sales grew 4.7% YoY to INR21.3b (our estimate: INR22.2b) in 4QFY19. EBITDA was down 5.8% YoY to INR4.6b (our estimate: INR5b), while adj. PAT increased 8.7% YoY to INR4.3b (our estimate: INR4b). Domestic FMCG business grew 6%, with underlying volume growth of ~4.3% (our estimate: +6%).
* FY19 performance: Sales, EBITDA and adj. PAT grew 10.1%, 7.6% and 9.3%, respectively. EBITDA margin shrank 50bp YoY to 20.4%.
* Concall highlights: DABUR is targeting high-single-digit volume growth in India FMCG in FY20, with 2-3% realization growth.
* Valuation and view: We cut our FY20/21 EPS forecast by ~3%/4% to factor in the company’s weaker-than-expected performance. We note that DABUR was able to deliver a moderate sales recovery in FY19 owing to (a) a base of weak rural/wholesale channel sales (it has among the highest exposures among peers) in the preceding two years and (b) requisite corrective actions taken to tackle market share losses to Patanjali. Despite this, FY19 turned out to be the third successive year of single-digit EPS growth and the fifth consecutive year of less than 12% sales growth. The company continues facing challenges in the form of a large and underperforming international business (~30% of sales) and an unwieldy domestic portfolio of brands, many of which are yet to demonstrate sustainably strong growth. Valuations are not cheap at 41.6x FY20, particularly for a business with moderate earnings growth prospects and lower-than-peers RoCEs of mid-20s. At the same time, we do acknowledge that earnings could come in better than expected if rural growth surprises positively and the new CEO further sharpens the focus on growth. Meanwhile, we maintain our Neutral rating on the stock with a target price of INR415 (targeting 40x FY21E EPS, close to its three-year average)
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