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Premiumisation/rural resurgence drives Q3 sales

Consolidated revenue/EBITDA/PAT grew by 3.1%/2.1%/1.8% YoY. FMCG industry grew 7% where rural outpaced the urban growth by 490 bps to 10%. Despite inflationary pressure and moderation in urban demand domestic business grew 1.7%/1.2% in volume/value term whereas rural outpaced urban by 140bps. Domestic growth supported by price (+3%) followed by volume (+1.2%) and management expects further price hikes of 2% to mitigate the inflation. International business with 18.9% (CC) growth led by Egypt, Turkey & Bangladesh. HPC and F&B grew 5.7/30% while Health Care & Beverage segment declined by 1.3/10.3% respectively. Management cited performance driven by, (1) resurgence of rural, outpacing urban (for 4th quarter), (2) better performance of HPC & Food business, (3) DD growth on organise trade, and (4) ~2.5x-3.0x growth in premium portfolio. Dabur expects to maintain EBITDA margin of 19-20%, though invest behind brand would continue. We tweak our earnings and retain BUY rating with a DCF-based TP of Rs633 (implying 51.1x FY27E EPS). Muted volume, HPC/Food grew 5.7%/30%, Health care/Beverages declined (1.3%)/(10.3%) Dabur’s Q3FY25 consol. revenues grew by 3.1%. Domestic business value/volumes grew by 1.7%/1.2%, International business grew 18.9% (CC) led by the Egypt (+54.6%), followed by Turkey (28.2%), Bangladesh (+21.6%), and MENA (+17.5%). In domestic market HPC/Food grew 5.7%/30%, while Health care/Beverage declined (1.3%)/(10.3%) respectively. Mid to high single digit growth would continue in HPC led by Oral and Hair care. In healthcare, Digestive, Ethical & OTC business performed well while Health Supplement (majorly Chyawanprash at Rs5bn) underperformed due to delayed winter and high base. Beverage (majorly Juice & Nectar) impacted due to muted festive demand coupled with lower OOH consumption & higher RPI (Relative price Index; 2.5x compare to Cola). Dabur expects maintain growth momentum led by, (1) entering into high growth adjacencies , (2) strong growth in oral & hair care, (3) persistent investment in brand building activity for power brands and 4) stable growth in international market. On volatile geopolitical and macroeconomic environment, Dabur has revised its strategic vision cycle from four years to three years and partnered with McKinsey & Co. to conduct a category review and drive growth opportunities

Inflationary pressure in key RM cut gross margin by 55bps to 48.1%; EBITDA margin at 20.3%

With inflationary pressure in key raw material prices cut Dabur’s gross margin by 55bps to 48.1%. EBITDA grew 2.1%, yet higher employee/other expenses at 2.6%/7.9% cut EBITDA margin to 20.3% (-19bps). PAT grew by 1.8% to Rs5.2bn. Management aims to maintain current EBITDA margin of 19-20% led by capitalising on premiumisation trend, invest in margin accretive business, cost saving initiates programme and judicious price hikes.

Valuation and risks

We believe mid to high single digit topline growth in medium term with stable operating margin of 19-20%. Management expects mid to high single digit growth backed by Oral & Hair Care portfolio. Food portfolio (Badshah masala) would continue to growth +20% while beverage could face headwind in short term. Healthcare portfolio growth would support by digestives followed by OTC & Ethicals while cautious outlook continue on health supplement (majorly Chyawanprash). Management said legal cost for Namaste legal case in the US to be Rs0.75bn (down from Rs1.0bn). We note improvement on gross margin would get reinvested in ad-spend as company intends to support power brands and NPD. With weak 9MFY25, we cut earnings for FY25E/FY26E by 7.7%/9.8% and retain BUY with a DCF-based TP of Rs633 (implying 51.1x FY27E EPS). Risks are tepid demand along with irrational competition.

Valuvations

We believe mid to high single digit topline growth in medium term with stable margin of 19-20%. Management expects mid to high single digit growth backed by Oral & Hair Care portfolio. Food portfolio (Badshah masala) would continue to growth +20% while beverage could struggle in short term. Healthcare portfolio growth would support by digestives followed by OTC & Ethicals while cautious outlook continue on health supplement (majorly Chyawanprash). Management said legal cost for Namaste legal case in the US to be 0.75bn (down from 1.0bn). We note improvement on gross margin would get reinvested in ad-spend as company intends to support power brands and NPD. With weak 9MFY25, we cut earnings for FY25E/FY26E by 7.7%/9.8% and retain BUY with a DCF-based TP of Rs633 (implying 51.1x FY27E EPS).

P/E mean and standard deviation

EV/EBITDA mean and standard deviation

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