IGI Logo

Headline may not please consensus; however, strong underlying trends

We stay longstanding believers in Mohit Malhotra-led reimagining of Dabur. 3Q performance was in line with our estimates – 2-year revenue CAGR print of ~12% and domestic volume growth of ~10% (again 2-year CAGR). Dabur continued to highlight outperformance across the portfolio with company gaining share in most of them. The performance was broad-based with Foods (including Beverages) continuing to perform well. Innovation in Healthcare is very reassuring. While overall input inflation does hurt Dabur, we would have liked continued aggression in adspends – the opportunity to invest in its power brands (after a brief lull last year) is very large.

Very few companies will see permanent benefit from expanded opportunity (post last year’s events) and Dabur appears one of them. However, staying on toes and adapting to evolving needs is what is keeping Dabur ahead. To add to it, expanded opportunity in Foods (& Beverages) is aiding a strong print. That said, (1) slowdown risk in healthcare portfolio still exists, (2) sustaining growth momentum in the beverages portfolio may be difficult and (3) there are concerns on rural deceleration.

We like the (1) continued thrust on innovation, agility and culture change driven by Mohit, (2) utilisation of e-commerce platform to drive new product development (premiumisation), and (3) distribution expansion and increased investment behind power brands to drive growth. Maintain BUY with a revised TP Rs680.

Good momentum continues with ~12% 2-year CAGR: Consolidated sales / EBITDA / PAT grew 8% / 9% / 2% YoY on the back of broad-based performance (healthcare saw a decline due to tough base though); 2-year CAGR was 12% with India business growing by 7.4% YoY (2% volume growth, 10% on 2-year CAGR basis) and international growing at 8.7% (C/C).

The strong domestic performance was driven by (1) strong performance (and continued recovery in parts of portfolio) in HPC (+8.4%) – market share gains in oral care (+6.7%; +8.1% for toothpaste), hair oils (+6.1%), shampoo (+21.2%) and Home Care (+18.6%), (2) strong acceleration in foods and beverages portfolio (up 26% and 39%, respectively) with continued benefit from new launches and distribution expansion, and (3) good performance in healthcare segment (-3% YoY but up 11.4% on 2-year CAGR basis) – with 2-year CAGR for OTC, supplements and digestives portfolio at 15.4%, 11.2% and 5.8%, respectively

RM pressure offset by operating leverage benefit: Consolidated gross margin declined 205bps YoY to 48.3% due to (1) inflationary headwinds in most input cost which was partially offset by pricing and (2) inferior product mix (higher contribution from beverages). EBITDA margin expanded 28bps YoY to 21.3% on the back of 16% YoY cut in ad spends and operating leverage benefit. We note that Dabur has taken price increases in most of the portfolio baring hair oil, which has high competitive intensity.

Broad-based performance in International business: Revenue grew 8.7% YoY (constant currency growth), driven by good performance across most geographies – MENA (+4.5%), Egypt (+13%), SSA (+6.4%) and USA (Namaste; +19.4%)

Valuation and risks: We cut our earnings estimates by ~6% for FY23E; modelling revenue / EBITDA / PAT CAGR of 13 / 14 / 13 (%) over FY21-24E. Maintain BUY rating with a DCF-based revised target price of Rs680 (Rs700 earlier). Key downside risk is sustained weakness in consumption demand.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer