Dabur India Ltd : Solid execution and stable outlook, but valuations pricing in most positives; reiterate REDUCE - Yes Securities
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Reduce Dabur India Ltd For Target Rs. 643
Solid execution and stable outlook, but valuations pricing in most positives; reiterate REDUCE
Result Highlights
* Quarter results – India FMCG volume and value growth of 34.4% and 35.4%, consol revenue growth of 31.9%, international business CC growth of 34.2%, EBITDA and PAT growth of 33% and 28% given a 10bps margin improvement offset by higher tax rate.
* Portfolio mix – Healthcare grew 30% with share gains in Chyawanprash and honey and continued strong growth in OTC/ethicals, HPC grew 26% led by share gains in oral care, hair oils and shampoo, F&B surged 80.4% led by share gains in juices and healthy traction in foods business.
* Margins – 9‐10% commodity inflation but only 3% price hike hit GMs by 130bps, A&P spends higher by 29% YoY; offset by strong cost savings to maintain stable margins.
* Outlook – Target high single‐digit volume and double‐digit revenue growth in FY22 with marginally lower gross margins but stable EBITDA margins led by cost savings; aggressive innovation, distribution, digitization efforts to continue.
Valuation and view
The 1Q performance was ahead of expectations as there was limited impact of the pandemic coupled with strong execution on‐ground. Key positives were growth in beverages business, continued momentum in healthcare portfolio and strong share gains in multiple HPC categories. With the company not fully passing on material inflation, GMs got impacted which was offset by cost savings under Project Samriddhi. Despite the high base for remainder of the year, a pick‐up in rural growth and strong execution is likely to result in 11‐12% growth in FY22 and beyond. The international business was resilient and is likely to sustain a double‐digit growth rate. While the F&B and HPC categories are expected to recover well in FY22, the key overhangs would be a moderation in healthcare portfolio and pressure on margins which can constrain the NPD pipeline. Although we like Dabur’s increased growth aggression, transformation initiatives, strong rural reach expansion strategy amidst an expanding Ayurveda/herbal market, current valuations limit upside potential. The pandemic hitting again could help the healthcare portfolio regain momentum, which would be an upside risk. We rollover our valuations to FY24E and model in slightly higher revenue/PAT CAGR of 12%/14% over FY21‐24E. We expect the stock to remain range‐bound and reiterate REDUCE rating with a PT of Rs 643 based on 45x FY24E earnings, in‐line with its 5‐yr average.
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