Update On: Dabur India Ltd By Motilal Oswal Financial Services
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Clocks mid-single digit growth in 2QFY23; gains market share across its portfolio
DABUR released its pre-quarterly update for 2QFY23. Here are the key highlights:
Consumption
* Demand was weak across categories due to unprecedented inflation in 2QFY23.
* Consumption in urban India was driven by modern trade and e-commerce, which saw double-digit growth.
* Rural markets witnessed liquidity pressures.
* The management expects consumption to grow in 2HFY23 on the back of moderating inflation and demand from the festive season.
India business
* The management expects revenue to grow in mid-single digits.
* It expects the Food and Beverages category to witness double-digit growth.
* The Home Care and Personal Care category is expected to witness mid-single digit growth.
* The Healthcare segment is expected to witness a muted performance. However, three-year CAGR will be near double-digits.
International business
* On a constant currency basis, the international business is expected to grow in double-digits.
* The currency devaluation in Turkey and Egypt continued, thus impacting translated growth.
Consolidated
* The management expects consolidated revenue to grow in mid-single digits.
* It gained market share in most segments in the domestic as well as international market.
* Gross margin will be under pressure due to peak inflation in 2QFY23.
* It expects operating margin to contract by 150-200bp YoY, but expand QoQ.
Valuation and view
* The medium-term and structural narratives on revenue growth are highly attractive, led by the initiatives taken by the new CEO in recent years on power brands, distribution, launches, and better analytics. Consequently, FY23 is likely to be the fourth year, out of five, of double-digit sales growth. As the impact of investing in these initiatives abates, DABUR’s margin is likely to expand in FY24. We highlighted the investment case in detail in our recent note.
* Its sales visibility in the near term is better than its peers. Coupled with higher pricing power v/s its peers, the visibility on DABUR’s earnings is better. We maintain our Buy rating with a TP of INR660 (45x Sep’24E EPS).
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