Hold Dabur India Ltd For Target Rs. 501 By PL Capital
Lacks visible triggers for a re-rating
Quick Pointers:
* Mid-single digit volume decline led by portfolio underperformance in most categories except Skincare, Foods & Badshah
* Dabur guides for at least high-single digit value growth in FY26
Dabur reported in-line numbers with mid-single digit volume decline led by seasonal delays, rising food inflation & urban demand weakness. We note that categories like Oral care, haircare, Chawyanprash and Honey have shown degrowth during the quarter. Dabur is looking at corrective steps in Beverages, introducing modern format products in healthcare, innovations in Hair oils & Chawyanprash and filling product gaps in oral care. However, we believe that the recovery would be gradual given heightened competitive intensity in some of these segments. We estimate 9.4% Sales CAGR & 9.3% PAT CAGR over FY25-27 on a low base affected by slowdown and inventory destocking. Dabur currently trades at 40.5xFY27 EPS, which is at 3% discount to LTA of 42.5x but the stock lacks any visible triggers in the near term. We value the stock at 42xFY27 EPS and assign a target price of Rs501 (Rs.494 earlier). Retain Hold.
Consol Revenues grew 3.1%; Revenues grew 0.6% YoY to Rs28.3bn (PLe: Rs28.4bn). Gross margins contracted by -191bps YoY to 46.7% (Ple: 48%). EBITDA decreased by 8.6% YoY to Rs4.3bn (PLe:Rs 4.3bn); Margins contracted by -150bps YoY to 15.1% (PLe:15.2%). Adj PAT declined by 8.3% YoY to Rs3.1bn (PLe: Rs3.1bn). Consumer care revenues grew by 1.9% YoY while EBIT declined by 6.9%. Margins contracted by 175bps YoY to 18.6%. Food segment revenues declined by 5.2% YoY while EBIT declined by 11.1%. Margins contracted by 81bps YoY to 12%. Retail segment revenues declined by 20.5% YoY while EBIT declined by 71.4%. Margins contracted by 174bps YoY to 1%. IBD reported 13.4% INR sales growth and was impacted by currency impact of 590bps. Growth was broad based and was led by Turkey, Mena, Bangladesh and Egypt.
Concall Highlights 1) Dabur has projected high single-digit to potentially double-digit value growth overall, alongside low to mid-single digit value growth in its Food & Beverages segment for FY26. 2) Green shoots visible across the business, supported by easing food inflation and tax cuts in the Union Budget. 3) Gross margin decline was led by 4–4.5% food inflation, partially offset by a ~3.5% price hike across Q4 FY25 and Q1 FY26—comprising 4–4.5% in healthcare, 1.5% in personal care, and 1.6% in beverages. 4) Dabur has addressed general trade inventory challenges by reducing inventory levels from 30 days to 21 days 5) Going forward, Dabur will continue investing in its core portfolio, pursue premiumization across categories, and take bold bets in the healthcare and wellness segments. 6) Dabur plans to launch modern-format products such as gummies and powders in the healthcare segment to better connect with evolving consumer preferences. 7) Dabur plans to strengthen its focus on driving growth in the healthcare and beverages segments 8) Dabur has not altered channel margins in its beverages segment, except for select underperforming SKUs, as it adapts to intensified competition, particularly from Campa Cola.
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