Buy Dabur Ltd For Target Rs.650 by Motilal Oswal Financial Services Ltd
In-line quarter; HPC performs well
* Dabur’s 3QFY25 performance was largely in line with our estimate. Consolidated revenue increased 3% YoY (in line), while constant currency (cc) growth was 6%. The India volume/value growth stood at 1.2%/1.7% YoY. Dabur took a 3% price hike to offset the inflation but was neutralized by trade schemes and promotions. Rural demand outpaced urban for the fourth consecutive quarter by 140bp.
* Home & Personal Care revenue was up 6% with growth across categories. Oral care grew 9% YoY (higher than Colgate and HUL). Healthcare revenue declined 1% YoY due to the delayed winter. Foods posted a strong 30% growth. Beverages declined 10% YoY due to muted festive demand and higher competitive intensity. Badshah continued its strong trajectory with 16% YoY growth. The international business grew 19% YoY in cc terms and 9% in INR terms.
* GM contracted 60bp YoY to 48.1% (est. 49.1%), while the EBITDA margin contracted marginally by 20bp YoY to 20.3% (in line). EBITDA rose 2% YoY.
* Dabur’s growth trajectory is trending below its potential and historical delivery. Most of its initiatives are delivering limited outcomes, which are marred by seasonality and weak consumption. HPC sustained a high singledigit growth, reflecting the true picture of efforts and consumption trends. Seasonal products will behave depending on the seasonality. However, Juices need some extra efforts to stabilize and recover; the upcoming season will be critical to track. Operating margin will remain accretive with pricing and mix favorable going ahead. We reiterate our BUY rating on the stock with a TP of INR650 (premised on 50x Dec’26E EPS).
In-line performance; domestic volume grows 1%
* Stable performance: Dabur’s 3QFY25 consolidated sales grew 3% YoY (in line) to INR33.6b (est. INR33.4b) and 6% in CC terms. The India revenue grew 2% with volume growth of 1.2% (est. 1%). EBITDA and adj. PAT increased 2% YoY each to INR6.8b and INR5.3b (est. INR6.8 and INR5.2), respectively.
* HPC business delivered 6% YoY sales growth: Oral care clocked 9% growth led by Dabur Red and Miswak. Dabur Red Toothpaste continued to gain market share. Miswak grew 16% YoY. Hair care, Home Care, and Skin Care posted 3%, 5%, and 6% YoY growth, respectively.
* Healthcare portfolio sales declined 1% YoY: Health supplements declined 3% YoY due to delayed winter, while Digestive was up 4% YoY and OTC & Ethicals were flat YoY.
* F&B sales dipped 6% YoY: The foods business delivered 30% growth, while beverages posted a 10% YoY revenue decline, hit by the muted festive season demand and price-driven competitive intensity. Badshah’s revenue was up 16% YoY.
* Flat operating margin: Gross margin contracted 60bp YoY to 48.1% (est. 49.1%). As a percentage of sales, ad spending declined 80bp YoY to 6.8%, other expenses were flat YoY at 11%, while staff costs rose 50bp YoY to 10%. EBITDA margin contracted marginally by 20bp to 20.3% (est. 20.2%).
* International growth was at 19% in CC terms and 9% in INR terms, led by Egypt, MENA, the US, and Bangladesh.
* In 9MFY25, revenue grew 2% YoY, while EBITDA/APAT declined 2%/3%
Highlights from the management commentary
* Urban demand moderated during the quarter, affected by persistent food inflation, while the rural market exhibited strong performance.
* The company anticipates sequential improvement in demand and mid-singledigit value growth in 4QFY25, driven by both pricing and volume growth.
* According to Nielsen data, rural growth outpaced urban growth by 490 basis points during the quarter. Overall, the FMCG sector grew by 7%, with urban areas growing by 5% and rural areas growing by 10%.
* The company remains focused on premiumization and product mix optimization to drive margin expansion.
Valuation and view
* There are no material changes to our FY25E/FY26E EPS estimates.
* Dabur mitigated the impact of inflationary pressures through disciplined cost control, operational efficiencies, and judicious price increases. With a broader distribution reach (to ~0.13m villages and ~7.9m outlets), increased direct penetration (~1.4m outlets), and extensive presence/categorical leadership in the rural market, DABUR is better positioned to capitalize on the rural consumption trend compared to its peers.
* The operating margin, which has been hovering around the 20% band over the last 8-9 years (unlike its peers that have experienced expansions), also has room for expansion in the medium term.
* With external drivers remaining consistent, we view the recent stock price correction as an opportunity to be constructive on the stock. We reiterate our BUY rating on the stock with a TP of INR650 (premised on 50x P/E on Dec’26).
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