Published on 30/05/2020 12:47:21 PM | Source: Emkay Global Financial Services

Hold Dabur India Ltd For Target Rs. 465 - Emkay Global

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Steeper decline than peers

* Dabur disappointed with a sharp 12% decline in revenues, led by higher proportion of nonessential categories and severe impact on placement of products in March-end. EBITDA and adj. PAT declined 23% and 18%, respectively, lower than our estimates by 20%.

* India business volumes grew 5% in Jan-Feb but the sharp decline in March led to a 15% decline for Q4. As per management, Covid-19 impacted sales and PAT by Rs3.6bn and Rs1.2bn in Q4 and is likely to impact Q1 sales and PAT by Rs4-4.5bn and Rs600-800mn.

* Management indicated a surge in demand for its healthcare products. Addressing higher demand, Dabur has also rolled out several new products in healthcare and hygiene. Capacity is back to 80% levels but overall commentary on growth remained cautious.

* We cut FY21-22E EPS by 4%. While we like Dabur’s renewed aggression, the ongoing disruption seems to have a higher impact on its portfolio in the near term. Maintain Hold with a TP of Rs465, based on 40x June-22E EPS.

Sharp decline in sales affected by non-essential products and severe impact on summer placement: Overall growth during Jan-Feb was 4.5%, with India volumes growing 4.6% and international business growing 8%. March had a severe impact on the India business due to the higher contribution of non-essential categories impacting the summer placement of these products, resulting in a domestic and consolidated revenue decline of 17% and 12.3%, respectively. Healthcare, HPC and Foods declined 12.6%, 18.9% and 20.6%, respectively. Management indicated that capacities are back to ~80% levels now but recovery was slow April due to delays in resuming the production of non-essential categories. International business was relatively less impacted with a decline of 1% for the quarter. Recovery is expected to be weak on account of macro-economic headwinds in key markets.

Margin impact to be lower ahead on cut in discretionary spends: The decline in EBITDA and PAT was sharper due to the sudden impact on sales and lack of time to address costs, particularly ad spends which increased 3%. Gross margins were also down 70bps, while staff costs and other overheads declined 5% and 11%. Management expects margin impact to be lower going ahead given the cost-saving initiatives (initiated project Samriddhi) and reduction in ad spends.

Growth outlook remains mixed; maintain Hold: While healthcare demand has been strong, growth outlook for other categories remains mixed with commentary being very cautious. We cut FY21-22E EPS by 4%. Maintain Hold with a TP of Rs465, rolling forward to June-22E EPS.


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