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Reduced healthcare momentum and margin headwinds offset by recovery in other segments

Result Highlights

* Quarter results – Soft results with 25.4% growth in revenue from a weak base with 30% growth in India (25.4% volume growth) and 19% growth in international business, margins flat at 18.9% and PAT growth of 25.5%; impacted by pipeline correction.

* Portfolio mix – Healthcare grew 23% with share gains in chyawanprash and honey and strong growth in OTC/ethicals, HPC grew 33% led by share gains in oral care, hair oils nd shampoo, F&B grew 28% led by share gains in juices and traction in foods business.

* Margins – Significant commodity inflation impacted GMs by 40bps, A&P spends higher by 120bps; offset by strong cost savings to maintain stable margins at 18.9%.

* Outlook – Localised restrictions leading to last mile supply chain disruptions but company better prepared, current production close to normal, discretionary portfolio to get impacted in near‐term but offset by strong traction seen since mid‐ April in immunity building healthcare portfolio.

Valuation and view ‐

The 4Q performance was weak impacted by pipeline inventory correction and normalization of strong growth seen in healthcare in last couple of quarters. Margins could not move up despite 3% price hike and strong cost savings given 6% inflation in commodities and higher A&P spends. The international business got back on track 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 aggression, growth focus, strong rural reach expansion strategy amidst an expanding Ayurveda/herbal market, current valuations limit upside potential, especially given the growth and margin headwinds in in FY22. The pandemic lasting longer than expected could again help the healthcare portfolio regain lost momentum, which would be an upside risk to our estimates. For now, we expect range‐bound performance for the stock and model in revenue/EBITDA/PAT CAGR of 11%/11%/13% over FY21‐23E. We assume coverage with a REDUCE rating with a PT of Rs 550 based on 45x FY23E earnings, in‐ line with its 5‐yr average

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