Reduce Dabur India Ltd For Target Rs. 473 by Centrum Broking Ltd
Management expects high single-digit growth
Consolidated revenue grew by 0.6% YoY while EBITDA/PAT declined by 8.6%/8.5% YoY. Rural outpaced urban growth by 450bps as GT in urban remained under pressure. Domestic business declined in mid single digits while International business reported 19.3% CC growth. On the domestic business front, HPC declined in mid single digit due to a high base while Healthcare underperformed due to a delayed winter and higher competition impacted Beverage sales. The management has employed a new “seven pillars” strategy to revive the business and expects high single digit growth for FY26 (higher growth in HPC & Food; Healthcare & Beverage to see moderate growth). Inflationary pressure in key raw material prices cut gross margin by 192bps to 46.7% whereas EBITDA margin came in at 15.0% (down 151bps). The management took 3-4% price increase in Q4FY25 to mitigate inflation. Considering the lower FY25 numbers, we have tweaked our earnings and have maintained REDUCE rating with a target price of Rs473 (44x on FY27E EPS).
Mid single digit decline in domestic business; International business outperformed
Dabur’s Q4FY25 consol. revenue was muted whereas the International business grew 19.3% (CC). On the domestic business front, HPC declined in mid single digit due to a high base; Healthcare underperformed due to a delayed winter and higher competition impacted Beverage sales. Rural outpaced urban growth by 450bps as GT in urban remained under pressure. The management has employed new “seven pillars” strategy to revive business. Those are: (1) investment in core portfolio (7 brands contribute Rs5bn each; 70% saliency: Dabur Red, Real, Chyawanprash, Honey, Hajmola, Amla & Vatica); (2) premiumization across categories like Serum & Conditioner in Hair Care, Whitening in Oral Care etc. (3) Bold bets in Healthcare & Wellness (4) Rationalisation of portfolio (Tea, Baby Diaper & Vita) (5) GTM 2.0 distribution (consolidation of stockists in Urban and expanding village coverage in Rural) (6) Focus on M&A (Healthcare, Wellness Food & Premium Personal Care) and (7) Optimisation of costs across the value chain. Going forward, the management expects high single digit growth for FY26, led by higher growth in HPC & Food while Healthcare & Beverage would see moderate growth.
Inflationary pressure in RM cuts gross margin by 192bps to 46.7%; EBITDA margin at 15.0%
Inflationary pressure in key raw material prices cut Dabur’s gross margin by 192bps to 46.7%. EBITDA declined by 8.6% YoY due to higher other expenses while employee expenses decreased by 6.9% YoY. EBITDA margin reached 15.0% (down 151bps), which was the lowest in the last eight quarters. PAT dropped by 8.5% YoY to Rs3.1bn. The management stated that 80% of FY25 inflation was observed in Q4FY25, which had a negative impact of 250bps on standalone gross margin. The company took 3-4% price increase in Q4FY25 to mitigate inflation. We expect margins to be in the tight range of 18-19% as investment in brands continues to support growth.
Valuation and risks
We believe that mid single digit topline growth over FY25-FY27E would be led by higher growth in HPC & Food while Healthcare & Beverage would see moderate growth. The Food portfolio (Badshah masala) would continue to grow at 15%+ in the short term. International business is expected to witness double digit CC growth over FY25-FY27E. The management has employed new “seven pillars” strategy to revive business and expects lower food inflation coupled with better monsoon to support growth. On the margin front, we expect stable operating margin of 18-19% as investment in brands along with R&D on NPD would continue. Considering the weak FY25 numbers, we have tweaked our earnings and have maintained REDUCE rating with a target of Rs473 (44x on FY27E EPS). Risks: Tepid demand along with irrational competition.
Valuation
We believe that mid single digit topline growth over FY25-FY27E would be led by higher growth in HPC & Food while Healthcare & Beverage would see moderate growth. Food portfolio (Badshah masala) would continue to grow at 15%+ in the short term. International business is expected to witness double-digit CC growth over FY25-FY27E. The management has identified new “seven pillars” strategy to revive business and expects lower food inflation and better monsoon to support growth. We expect stable operating margin of 18-19% as investment in brands along with R&D on NPD would continue. Considering the weak FY25 numbers, we have tweaked our earnings and have maintained REDUCE rating with a target of Rs473 (44x on FY27E EPS). Risks: Tepid demand along with irrational competition.
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