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Topline growth outperformance continues

Dabur's 3QFY21 saw strong revenue growth, beating our as well as the street's expectations. Domestic value/volume growth was at 18% YoY (HSIE 14/10%) with broad-based recovery. Healthcare portfolio clocked stellar 28% YoY growth, led by continued traction for health supplements. HPC clocked 16% YoY growth, led by sustained outperformance in oral care (up by 28%). Food recovery was encouraging with 5% YoY growth, after posting 21% decline in 1HFY21. New launches across categories continued to witness strong traction with rising share of e-comm (6% mix). The growth was also led by market share gains for the company across categories. Gross margins were stable at ~50%, while A&P saw a sharp 39% jump to accommodate aggression for new launches. EBITDA margin was stable at 21%. We remain positive on Dabur's ability to deliver strong revenue growth, led by its positioning as a natural and trusted brand along with the power brands strategy. We marginally increase EPS estimates for FY21/FY22/FY23. We value Dabur at 45x P/E on Mar-23E EPS to derive a target price of Rs 550. Maintain ADD.

* Healthcare drives growth: Net revenue grew by 16% YoY (+7% in 3QFY20 and +14% in 2QFY21), ahead of our expectation of 12% YoY growth. Domestic business grew by 18% YoY (HSIE 14%) with 18% YoY volume growth. Hair Care/Oral Care/OTC/Ethicals/Skin Care/Foods clocked growth of 14/28/34/23/9/19% YoY. Juices, excluding Enterprise revenue, saw growth of 8% YoY while culinary business grew by 16% YoY. Digestives remained flat YoY while Home Care declined by 1% YoY. Dabur saw strong market share gains in oral care, hair oils, home care, Chyawanprash and juices. International revenue grew by 13% YoY with 14% YoY cc growth.

* A&P reinvestments limit margin expansion: GM expanded by 31bps YoY (+80bps in 3QFY20 and flat in 2QFY21), in line with estimates. GM was impacted by steep inflation of ~6% in key input materials. Employee/ A&P/Other expenses grew by 12/39/3% YoY. EBITDA margin remained flat YoY at 21% (+70bps in 3QFY20 and +50bps in 2QFY21). EBITDA grew by 16.5% YoY (HSIE 15%). Dabur’s focus on cost-saving initiatives helped the company expand margins despite growth in A&P spends. PBT grew by 18% YoY while PAT grew by 24% YoY.

* Call takeaways: (1) New products mix in 3QFY21 was 5%; (2) thecompany’s direct reach is expected to increase to 1.4mn in FY21; (3) the company expects savings of Rs 1.5bn under Samridhi program; (4) Dabur is expanding the Hajmola brand, which is a potential power brand for the company; (5) increased salience of e-comm will continue to drive premiumisation.

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