Buy Dabur India Ltd for the Target Rs.600 by Motilal Oswal Financial Services Ltd
Steady quarter; consumption recovery underway
* Dabur’s 1QFY26 performance was largely in line with our estimates. Cons. revenue increased ~2% YoY. Excluding the impact of seasonal portfolio, consol. sales grew by 7%. India business revenue grew by 4.3% YoY, excluding the seasonal portfolio. Domestic volume declined 1%; excluding the seasonal portfolio impact, volume grew ~3.5%.
* Home & Personal Care revenue was up 5%, backed by strong performance in oral care, home care and skin care. The healthcare portfolio declined by 4.4%; excluding glucose, it was up by 2.7%. In this portfolio, Dabur has increased prices by ~6%. F&B revenue declined 14.3% YoY given milder summers and unseasonal rains. The international business grew 13.7% YoY in cc terms and 12.7% in INR terms.
* GM contracted 75bp YoY to 47% (est. 47.2%), while EBITDA margin was flat YoY at 19.6% (est: 19.1%). EBITDA grew 2% YoY. Management said that there was ~7% inflation in the quarter, which was mitigated by price increases of ~4% and cost-saving initiatives.
* Dabur’s growth trajectory is improving sequentially. Most of its initiatives were impacted by a high base, seasonality, weak consumption and high competitive intensity. We believe that with improving macros for consumption, Dabur can deliver a better print in FY26. It expects high single-digit growth with an improvement in operating profits in FY26. The stock has been under pressure after delivering a poor performance in FY25. However, with a positive consumption outlook for FY26, we expect that a gradual performance recovery will reflect in the stock accordingly. We reiterate our BUY rating on the stock with a TP of INR600 (premised on 45x Jun’27E EPS).
In-line performance; volume growth at 3.5% ex-seasonal portfolio
* In-line performance: Dabur’s 1QFY26 consolidated sales grew 1.7% YoY (in line) to INR34b (est. INR34.3b); excluding the seasonal portfolio, cons. sales grew by 7% in 1QFY26. The India business revenue grew by 4.3% YoY, excluding the seasonal portfolio. Volume declined 1%; excl. seasonal portfolio, volume grew 3.5%. EBITDA grew 2% to INR6.7b (est.INR6.5) and adj. PAT grew 3% YoY to INR5.2b (est.INR4.9).
* HPC business grew 5% YoY: Oral Care grew in mid-single digits YoY. The toothpaste business grew 7.3%, backed by Dabur Red and Meswak. Skin care grew in high single-digits, with robust double-digit growth in Gulabari.
* Healthcare portfolio up 2.7% YoY: Healthcare portfolio, excluding glucose, grew by 2.7%; Including glucose, it declined 4.4% YoY. Dabur has taken ~6% price increase in this portfolio. Glucose declined ~40% YoY on account of unseasonal rains and high growth in the base quarter (31% growth in 1QFY25). While Chyawanprash grew in strong double digits on account of early onset of monsoons, Honey saw healthy growth of ~11% in 1Q.
* Foods and Beverages saw steep decline: F&B revenue declined 14.3% YoY as Real portfolio was hit by milder summers and unseasonal rains. Badshah delivered 6.5% growth YoY, while volume grew in double digits YoY.
* International growth was at 13.7% in CC terms and 12.7% in INR terms, led by MENA, Turkey, UK, SSA and Bangladesh.
* EBITDA margin flat: Gross margin contracted 75bp YoY to 47% (est. 47.2%). As a percentage of sales, ad-spends declined 110bp YoY to 5.9%, other expenses were flat YoY at 11.6%, and staff costs increased 30bp YoY to 9.9%. EBITDA margin remained flat YoY at 19.6% (est. 19.1%).
Highlights from the management commentary
* For the last five consecutive quarters, rural markets have outperformed urban. In 1QFY26, rural growth was 390bp higher than urban growth, both in value and volume terms. That said, the urban markets witnessed sequential recovery.
* Management said that there was ~7% inflation in the quarter, which was mitigated by price increases of ~4% and cost-saving initiatives.
* For FY26, Dabur aspires to grow in high single digits, while given the low base for 2QFY26, it expects growth to be in double digits.
* NPD contributed more than 20% to consol sales.
* For FY26, the company expects GM improvement and operating margin to see significant improvement YoY.
* In 1QFY26, the toothpaste category grew 4%, while non-herbal grew 4.4% and herbal grew 8.8%.
Valuation and view
* We maintain our EPS estimates for FY26 and FY27.
* Despite taking price hikes, Dabur is unable to offset the impact of inflationary pressures. However, backed by disciplined cost control, operational efficiencies, and improving macro scenario, we expect things to improve gradually for Dabur. With a broader distribution reach (to ~0.13m villages and ~7.9m outlets), increased direct penetration (~1.5m outlets), and extensive presence/categorical leadership in the rural market, DABUR is better positioned to capitalize on both the rural and urban consumption trends compared to its peers.
* Operating margin, which has been hovering around the 20% band over the last 8-9 years (unlike its peers that have experienced expansions), has room for expansion in the medium term.
* We reiterate our BUY rating on the stock with a TP of INR600 (premised on 45x P/E on Jun’27E).
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