IGI Logo

Dabur’s Q1FY25 print was in-line with our estimates; Consolidated revenue/EBITDA/PAT grew 7.0%/8.3%/8.2% YoY. Domestic business volumes grew 5.2%, yet International business grew 18.4% (CC). Domestic growth was led by HPC (+8.1%), F&B (+4.0%), Health care (+7.0%). Management said its three fold strategy helped to address changing landscape. Q1 growth was driven by, (1) gradual pickup in rural which outpaced urban growth by 350bp, (2) 3% contribution from NPD, (3) with 20% contribution from emerging channels MT/ecom grew 17%/20% YoY. Gross margin moved up to 47.8% (+119bp) owing to lower inflation and cost saving initiatives. Despite higher employee/other expenses 8.7%/9.7% and ad spends (7.0% of sales) EBITDA margin settled at 19.6% (+24bp). Dabur aims to deliver high single digit volume growth with ~2% price hikes and aspires to recoup +20% EBITDA margin, though savings from lower input costs would be invested back in ad-spends. We tweak our earnings and retain BUY rating with a revised DCF-based TP of Rs735 (implying avg. 43.4x FY27E EPS).

Q1FY25 growth was driven by HPC (+8.1%), though high heatwave cut healthcare/F&B sales

Dabur’s Q1FY25 consol. revenues grew by 7.0%. Domestic business volumes grew 5.2%, yet International business grew 18.4% (CC). Domestic growth was led by HPC (+8.1%), F&B (+4.0%), Health care (+7.0%). Management said its three fold strategy helped to address changing landscape. Q1 growth was driven by, (1) gradual pickup in rural which outpaced urban growth by 350bp, (2) 3% contribution from NPD, (3) with 20% contribution from emerging channels MT/ecom grew 17%/20% YoY. Badshah spices grew 15% while food segment grew 21.3%. Dabur benefited from gradual uptick in discretionary spending led by improved macros and government’s focus on rural infra. Category growth: Foods (+21.3%), Badshah spices (+15.0%), Shampoo (+13.7%), Oral Care (+11.4%), Digestives (+10.7%), Home care (+8.0%), Health Supplements (+7.8%), Skin care (+6.1%), OTC & Ethicals (+3.7%), H/Oils (+3.3%) and Beverages (+2.8%). Growth in international business was led by the Egypt (+63.7%), SSA (+21.4%), Turkey (+18.5%), MENA (+13.0%), SAARC (+9.2%) and Namaste (+3.1%).

Softening input prices improved Q1 gross margin; ad-spends inched up to 7.0% of net sales

With softening input costs, despite elevated prices for LLP, herbs/food concentrate Dabur’s gross margin moved up to 47.8% (+119bp) owing to cost saving initiatives. Despite higher employee/other expenses +8.7%/+9.7%, and ad spends (+15.4%) EBITDA margin settled at 19.6% (+24bp). Dabur aims to recoup +20.0% EBITDA margin led by premium portfolio and ~2.0% price hike, though savings would be invested back in the ad-spends and promotion

Namaste facing law suit in US – contribute ~1% to revenues

Management said legal cost of Namaste would come down from Rs1bn to Rs0.8bn in FY25 and case is on the discovery stage (cost is insured which may help to recover 50% amount). Management said there is enough insurance cover available, though Dabur has separated international business and subsidiaries from Namaste.

Valuation and risks

Dabur mitigated the impact of inflationary pressures through disciplined cost control, operational efficiencies and judicious price increases. Dabur expects, with stable monsoon and govt. spending on infra push to lift rural sales momentum helped to grow faster than urban. Further, savings from falling input prices would get reinvested in ad-spend as company intends to support power brands and NPD funnel. Food portfolio (Badshah masala) would continue to growth +20%. We have increased earnings for FY25E/FY26E by 2.1%/3.5% and introduced FY27E. We retain BUY with a revised DCF-based TP of Rs735 (43.4x FY26E EPS). Risks are tepid demand along with irrational competition.

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331