Large Cap: Buy Dabur India Ltd For Target Rs.560 - Geojit Financial Services
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Decent performance despite inflationary pressure
Dabur India Ltd (Dabur), a leading Indian FMCG company, is a world leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic products. The company operates through Health Supplements, Digestives, Shampoos, Hair Oils, Skin Care, Oral Care, Foods, and Other OTC & Ethical products
* Q4FY22 revenue went up 7.7% YoY to Rs 2,518cr and 13.9% YoY for FY22 to Rs 10,889cr, largely led by increase in Food and Beverages revenues (+33.5%).
* EBITDA margin contracted 90bps YoY to 18.0% primarily due to high material inflation. Adj PAT remained stable at Rs. 379cr.
* Market share across all segments is increasing. However, inflationary trend in raw materials costs are expected to weigh on company’s margins in the short-medium term. We upgrade to Buy with a revised TP of Rs. 560 based on 42x FY24E EPS considering recent sharp fall in the stock price.
Strong product traction aids topline growth
In Q4FY22, Dabur registered growth of 7.7% YoY and an 8.7% YoY growth (in constant currency) in the international business. Under F&B, Foods portfolio rose 12.5% YoY supported by Hommade brand, whereas beverages business continued to exhibit strong momentum across segments (+35% YoY). Under Healthcare, Health Supplements rose 9.7% YoY led by double digit growth in Dabur Honey and Glucose-D, and OTC & Ethicals increased 7.5% YoY driven by strong growth in Honitus and Health juices. Under HPC, Shampoo and Hair oils witnessed growth of 5.6% and 2.6% YoY, respectively. Home Care revenue rose 11.0% YoY on growth in Odonil and Sanifresh. International business reported constant currency growth in Hobby (+47.2% YoY), Namaste (+11.2% YoY), SAARC (+5.4%), MENA (+0.9%), SSA (+24.8%) and Egypt (+12.0%).
Margins impacted by higher input costs
In 4Q22, EBITDA grew 2.5% YoY to Rs. 454cr (-27.7% QoQ). EBITDA margin contracted by 90bps YoY to 18.0% on higher A&P spends, and higher input costs. Adj PAT remained stable at Rs 379 cr (0.4% YoY) from Rs. 378cr, impacted by higher tax expenses (+28.3% YoY) and impairment loss of Rs 85 cr. Operational efficiency helped improve productivity.
Key concall highlights
* Hajmola Amla Candy launched in chatpata flavour in the tasty digestive space and Sudarshan Ghanvati (used for body ache and indigestion) launched in Ethicals category.
* Turkey business is not doing well, for which they've taken impairment of Rs 85 cr (on account of steep devaluation of Turkish Lira).
* Around 23% of total advertising spends has been spent on digital media marketing, which will help E-commerce contribute around 19%-20% of our total business in next four years.
Valuation
Company displayed resilient performance albeit the rising raw material prices supported by e-commerce sales channel expansion, and good trajectory has led to increase in market share across categories. However, pressure on the cost side due to steep inflation triggered by global environment remains a cause of concern in the short-to-medium term. We upgrade to Buy on the stock with revised target price of Rs. 560 based on 42x FY24E EPS considering recent sharp fall in the stock price.
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