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Off high base expect 9.2% revenue growth in Q1

Dabur India Ltd. in its exchange filing today said that it witnessed pressure on consumption across categories led by a lower share of income available for spending on consumer staples. We note, in Q1FY22 Dabur reported revenue growth of 35.4% supported by 34% growth in volume. That said considering the impact in urban as well as rural markets we estimate 9.2% revenue growth in Q1FY23e. Segmental performance: Foods strong double digit growth; HPC low double digit; Health care single digit decline. International business to report high single-digit revenue growth. Despite judicious price increases and cost saving initiatives it saw continued cost pressure expecting 200bp impact on operating margins. Given normal monsoon and recovery in rural markets we expect strong momentum in 2HFY23. We remain positive and maintain Buy with DCF-based TP Rs650 (implying 47.4x FY24E EPS).

Off high base we expect 9.2% revenue growth in Q1FY23

Dabur India said, off high base in Q1FY22 (35.4% revenue and 34% volume growth) led by Covid tailwinds it is expected to register high-single digit revenue growth backed by mid-single digit volume growth. Given challenging environment, Dabur says in Q1FY23 growth has been fairly resilient as it witnessed pressure in consumption across categories led by a lower share of income available for spending on consume staples. Such trends were seen across urban and rural markets. According to management Foods portfolio to report strong double-digit growth led by intense summer, out-of-come consumption, and innovations (dairy beverages). HPC is expected to record high-single to low double-digit growth despite high base (26.1%) while Health care vertical is expected to decline. International business is expected to register high single-digit revenue growth, however due to currency devaluation in Turkish Lira the reported growth in INR terms would be in low single-digit.

No respite from unabated inflation could see 200bp impact on operating margins

Dabur said it witnessed high impact of input costs led by crude derivatives, vegetable oils, honey and agri. Based commodities. Despite judicious price increases and cost saving initiatives, Dabur saw cost pressure expecting short term impact of 200bp on operating margins as compared to Q1FY22, which were higher due to higher share of health care portfolio. Further it targets to achieve higher than industry growth with stable margins and continue to invest behind power brands, innovation and ad-spend to deliver sustainable growth.

Our view and Risks We reckon off high base in Q1FY22

Dabur benefited from high demand for Covid contextual products, but over last few quarters the demand has waned off. We believe the imported inflation (crude oil and vegetable oil) pushed FMCG companies to execute higher price increases, yet Dabur took calibrated price changes which could reflect in ~5-6% volume growth. However, given normal monsoon leading to recovery in rural markets to reflect better operating performance for Dabur in 2HFY23. We remain positive and maintain Buy with DCF-based TP Rs650 (implying 47.4x FY24E EPS). Key risks to our call include weak demand conditions, rise in crude oil prices and currency depreciation.

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