PL Stock Report: Dabur India (DABUR IN) - Q1FY24 Result Update - Demand trends give positive tidings - Accumulate

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

Rating: ACCUMULATE | CMP: Rs555 | TP: Rs600

Q1FY24 Result Update - Demand trends give positive tidings

Quick Pointers:

♦ Volumes grew 3%; adverse weather pattern impacts beverages.

♦ Rural growth in high single digits; urban growing in double digits.

We cut our FY24/25 EPS estimates by 0.4%/2.2% for FY24/25 due to 1) higher trade/customer promotions 2) higher ad spends and 3) higher capex/ lower treasury income. Dabur’s 1Q results were encouraging with rural market growth of 8% coupled with 6-8% volume growth in Healthcare/HPC/Foods categories. Demand/volume trends are expected to improve in subsequent quarters with lower rural-urban growth gap, moderating inflation and higher rural incomes (Agri/MNREGA employment). We remain constructive on Dabur given 1) green shoots in rural India 2) market share gains in key categories and 3) expected ramp up in fruit based drinks & Badshah Masala. The company is also a formidable play on growth revival in rural India, given 45-50% contribution to overall sales. Sustained innovation and launches in core segments like Healthcare, F&B, Oral Care will help sustain double digit growth rates in India market while revival in GCC will enable double digit sales growth in IBD. We estimate 15.4% EPS CAGR over FY23-25 and arrive at DCF based target price of Rs600 (45.6xJun25 EPS). Dabur trades at 42.2x Jun25 EPS with 21.2% ROE and 50% dividend payout. Retain ‘Accumulate’.

Consol Revenues up 10.9%; Volumes grew 3%: Revenues grew 10.9% YoY to Rs31.3bn. Gross margins expanded 74bps YoY/79bps QoQ to 46.6%. EBITDA grew 11.2% YoY to Rs6bn; Margins expanded 6bps YoY/401bps QoQ to 19.3%. Adj PAT grew 3.5% YoY to Rs4.6bn. IBD witnessed 20.6% YoY growth in constant currency terms.

Margins improved sequentially across segments: Consumer care revenues grew 12% YoY, while EBIT grew by 16.5%. Margins improved by 90bps YoY/482bps QoQ to 23.3%. Food segment revenues grew by 9.9% YoY, while EBIT declined by 7.1%. Margins contracted by 252bps YoY, but was up 22bps QoQ to 13.9%. Retail segment revenues grew by 15.7% YoY, while EBIT grew by 190%. Margins contracted by 59bps YoY, but was up 325bps QoQ to 1.0%.

Concall Highlights: 1) Dabur’s rural growth at 8% vs 4% for industry 2) Food basket inflation at 11%, HPC/HC inflation moderated 3) EBITDA margin to remain in 19-20% band 4) Healthcare to grow at high single digit/double digit in medium term 5) Honey controversy was plotted by rivals to malign image; Gained 500bps market share since last incident 6) HPC has high priced inventory, which will deplete, thereby leading to GM improvement 7) Oral care vol growth at 8% vs category’s 2.5% 8) Put 500 feet on street towards allopathic channel to generate Rs1.5bn of incremental sales 9) To cross pollinate/explore synergies between Badshah & Hommade to leverage distribution. 10) Baby Care (e-com only) targets Rs500mn revenues in FY24 11) NPD salience across verticals likely at 3-4%; E-commerce at 10% 12) on lookout for margin accretive & synergistic D2C companies 13) FY24 capex budgeted at Rs4-4.5bn

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