Healthcare and new launches driving better performance
* Dabur’s Q1 sales/PAT declined 13%/11% and came in marginally below expectations on a 22% fall in the international business. The domestic business performed better, with 8% sales decline and 4% PAT growth on strong growth in the Healthcare segment.
* Cost reduction was better than peers with a 14% decline in domestic overheads. This, along with a 22% fall in ad spends, led to EBITDA growth with a 260bps margin gain. Cost efficiencies and lower competitive spends continue to offer a positive margin outlook.
* Strong demand for healthcare products, a significant acceleration in new product launches (6% of sales in Q1) to meet current consumer needs and some normalization seen in its discretionary portfolio should drive a faster recovery in the coming quarters, in our view.
* We like management’s aggressive efforts and initiatives to drive recovery and growth, but await a better entry point as current valuations at 43x FY22E EPS restrict upsides. Maintain Hold with a revised TP of Rs500 (Rs465 earlier), based on 40x Sept-22E EPS.
Domestic performance was better led by Healthcare segment: The domestic business performed better, with sales and volume declines of 8% and 10%, respectively. Strong growth in Healthcare (up 29% yoy) was partially offset by the steep declines in Home & Personal Care/Foods (15%/35%). Health supplements grew 53% yoy, driven by Chyawanprash and Honey that saw market share gains of 600bps and 300bps, respectively. Within Personal Care, hair oils and home care declined sharply by 26% and 31%, respectively. The international business declined 22% due to weak performance in Nepal/MENA (down 53%/48%). New products contributed Rs1bn to sales (~6%). The recovery was good in June, with secondary sales growing 7-8%. It is continuing in July. This, along with Dabur’s aggressive efforts, step-up in the pace of innovation, and distribution initiatives should drive a faster recovery, in our view.
Margin expansion to be driven by cost savings: Overall gross margins remained flat at 49.4% due to unfavorable country mix, while domestic gross margins expanded 130bps on pricing and mix. EBITDA margins expanded 90bps on a decline in ad spends/other overhead costs by 28%/18%. Going ahead, management remains positive on margin expansion with its cost-saving projects (Project Samriddhi), driving ~Rs1-1.2bn of savings by achieving supply-chain efficiencies.
Await better entry point; Hold: We like management’s aggressive efforts and initiatives to drive recovery and growth, but await a better entry point as most positives seem to have priced in at current valuations of 43x FY22E EPS. Maintain Hold with a revised TP of Rs500 (Rs465 earlier).
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