PL Stock Report: Dabur India (DABUR IN) - Q1FY24 Result Update – Watch out for rural recovery in 2H - Accumulate

Dabur India (DABUR IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs530 | TP: Rs597

Q1FY24 Result Update – Watch out for rural recovery in 2H

Quick Pointers:

• Volumes grow 3%; adverse weather pattern in July and late festival season impacts beverages sales in North India
• Gap between Urban and rural reduced in Q2, expects further improvement in coming quarters

Dabur 2Q results came in line and company gave cautiously optimistic outlook in 2H led by 1) Gradual recovery in rural demand with gap between rural and urban being reduced 2) market share gain across categories and 3) success of new launches. Demand/volume trends are expected to improve in subsequent quarters with green shoots in rural demand, moderating inflation and higher government spending.

Dabur currently remains a play on growth revival in rural India given 45-50% contribution to overall sales. We believe sustained innovation and launches in core segments like Healthcare, oral care& HPC will help sustain double digit growth in India. While sustained revival in GCC/SAARC seems on track, spreading of Israel war to other countries remains a risk. We estimate 14% EPS CAGR over FY23-26 and arrive at DCF based target price of Rs597 (43.9x Sep25 EPS). Dabur trades at 39.1x Sep25 EPS with 21.2% ROE. Retain Accumulate.

Consol Revenues up 7.3%; Volumes grew 3%: Consol Revenues grew by 7.3% YoY to Rs32bn (PLe: Rs32.4bn) Gross margins expanded 295bps YoY to 48.3% (Ple: 46.7%)EBITDA grew 10% YoY to Rs6.6bn (PLe:Rs 6.5bn); Margins expanded by 51bps YoY to 20.6% (PLe:20.1%) Adj PAT grew by 3.3% YoY to Rs5.1bn (PLe: Rs5.0bn) IBD witnessed 23.6% YoY growth in constant currency terms.

Margins improved in Consumer care and Retail segment: Consumer care revenues grew 7.6% YoY while EBIT grew by 11.6%. Margins improved by 87bps YoY to 24.3%. Food segment revenues grew by 8.2% YoY while EBIT declined 13.6%. Margins contracted by 377bps YoY to 15%. Retail segment revenues grew 14.1% YoY while EBIT declined 122.2%. Margins improved 205bps YoY to 0.3%.

Concall Highlights: 1)HPC category saw robust growth which was led by increased market share of Odonil (160bps+) & Odomos (~560bps) 2) Food Category( including Badshah) is on track to achieve Rs 5Bn exit revenue 3) Beverages impacted by uneven rainfall distribution & shift in festive season 4) IBD grew by 23.6% in CC terms led by sustained recovery in GCC 5) Gap between urban & rural markets is reducing, however rural markets in South India are affected more than the rest of India 6) Modern trade/e-com is performing better than general trade 7) Dabur has undertaken Rs300-400mn capex to regain market share in packaged coconut water which was affected by entry of private equity player 8) Current litigation cost against Namaste LLC (Haircare range) amounts to Rs 630mn in H1FY24, expected to be Rs 200mn /quarter for the next 2 years 9) Management maintained guidance of 19.5% EBITDA Margin in FY24