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* DABUR’s 1QFY24 result was broadly in line with our estimates in all aspects. It reported volume growth in both rural and urban markets, with an increase in distribution reach and market share.

* HPC and HC showed moderation in RM inflation, while the food inflation remained high. It led GP margin expansion of 70bp YoY. With increase in media spending, EBITDA margin remains flat at 19.3%.

* Allied with synergies in the healthcare portfolio, it expects to achieve double-digit consolidated sales growth in FY24. Badshah masala (grew 24%) addition to foods portfolio adding the growth momentum.

* DABUR has shown the rural recovery ahead of industry, and nearly half of its domestic sales coming from rural markets, which will boost growth momentum. We maintain our BUY rating on the stock with a TP of INR660 at 50x FY25E EPS.

Performance in line with our estimates

* 1QFY24 consolidated sales grew 10.9% to INR31.3b (est. INR30.9b).

* EBITDA/PBT/adj. PAT increased 11.2%/5.2%/5.4% YoY to INR6.0b/INR5.9b/ INR4.6b (est. INR5.9b/INR6.1b/INR4.7b).

* The company posted 3% India FMCG volume growth YoY in 1QFY24 (est. 6%).

* Gross margin expanded 70bp YoY to 46.6% (est. 46.8%).

* As a percentage of sales, higher ad-spends (100bp YoY to 6.5%), stable staff costs (-10bp YoY to 9.5%) and lower other expenses (-20bp YoY to 11.3%) led to flat EBITDA margin at 19.3% (est. 19.2%).

* 1QFY24 standalone sales grew 7.7% YoY to INR23.5b. EBITDA/adj. PAT fell 8.1%/7.9% YoY to INR4.6b/INR3.8b. EBITDA margin stood at 19.7%.

Highlights from the management commentary

* Volume has seen an uptick in both urban and rural markets, led by a moderation in inflation. Total volume grew 6% in 1QFY24. The management expects volume growth in mid-single to high-single digits in FY24. ? The Healthcare and HPC portfolios registered double-digit growth, while beverages saw a decline due to unseasonal rains in northern and western India.

* In the Health portfolio, the recently established therapeutics division is targeted to reach 70k allopathic doctors (current reach of 70k ayurvedic doctors).

* Capex stood at ~INR1.6b in 1QFY24 and is expected to be ~INR4-4.5b in FY24.

* Distribution changes in international markets have been resolved, and the company anticipates good double-digit growth in FY24.

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