Hold Dabur India Ltd For Target Rs.524 by Prabhudas Liladhar Capital Ltd
Structural drives not yet in place
Quick Pointers:
* Management expects high-single digit growth in FY26 with double-digit growth in 2Q26 though beverages are likely to see low-single digit growth
* Operating Margins to improve YoY led by price hikes & saving initiatives
Dabur reported in-line numbers impacted by seasonal delays, geo-political headwinds & softness in urban demand. Summer-centric portfolio (Real, and Glucose) dragged growth given weather anomalies whereas Gulabari, Chyawanprash, Honitus, Hajmola delivered double-digit growth. Dabur is looking at corrective steps in Beverages, introducing modern format products in healthcare and innovations in Digestives. However, we believe that the recovery would be gradual given heightened competitive intensity in some of these segments.
We expect strong growth in 2Q/3Q on a low base and expected improvement in urban demand even as rural demand recovery is on course. Debur is experiencing 7-8% input cost inflation and would need to take price increases to ward off the impact, which can impact volumes to some extent. 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 43.4xJuneFY27 EPS, which leaves little room for significant re-rating. However, given low base and expected demand recovery, retain Hold with a target price of Rs524 (43xJune27 EPS).
Consol Revenues grew 1.7%; Revenues grew 1.7% YoY to Rs34bn (PLe: Rs34.3bn). Gross margins contracted by 75bps YoY to 47% (Ple: 47.5%). EBITDA increased by 0.1% YoY to Rs6.7bn (PLe:Rs 6.7bn); Margins increased by 5bps YoY to 19.6% (PLe:19.4%). Adj PAT increased by 2.8% YoY to Rs5.1bn (PLe: Rs5bn). Consumer care revenues grew 5.4% YoY while EBIT grew by 6.1%. Margins improved by 17bps YoY to 23.8%. Food segment revenues declined by 11.7% YoY while EBIT declined by 18.2%. Margins contracted by 102bps YoY to 13%. Retail segment revenues declined by 11.6% YoY while EBIT declined by 933.3%. Margins contracted by 211bps YoY to 2%. IBD reported 13.3% sales growth (CC terms) & 12.7% sales growth (INR)
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