Maintain REDUCE on Dabur - Weak performance, Share gain continues - HDFC Securities

Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Dabur (Q4FY20): Weak performance, Share gain continues. Maintain REDUCE
(TP Rs 404, CMP Rs 431, MCap Rs 758bn)

Dabur India reported 12% yoy decline in net revenues with a contraction of 15% yoy in India volume. Domestic volumes were up by 4.6% yoy in Jan/Feb (largely inline) but high dependence on the last 10 days of March (~20% of the qtr, more than expected) impacted overall performance. Channel filling for seasonal products like Juices, Glucose, Pudin Hara etc was impacted most due to lockdown. International business clocked healthy 8% yoy growth in Jan/Feb, and -0.6% yoy in 4QFY20. Negative oplev and limited time for cost control resulted in 23% yoy decline in EBITDA. Dabur can capitalise on the rising consumer trend towards naturals/ayurvedic, health supplement and hygiene products in the medium term. However, aggregate demand will be weaker for discretionary business in India and international business will also be volatile with several macro headwinds in FY21. We cut EPS estimate by ~10% for FY21/FY22 (7/9% cut in our FMCG thematic in April). We value DABUR at 40x on Mar-22E EPS, deriving a TP of Rs 404. Maintain REDUCE.

Weak revenue performance: Net revenues declined by sharp 12% yoy led by pressure in the domestic business. Covid led lockdown impacted revenue in 4Q by Rs 3.6bn (20% impact). Pre-covid performance was healthy at 4.6% yoy volume growth in Jan/Feb (5.6% and 6.7% yoy volume growth in 3Q/9MFY20). Hair Care/Oral Care/Food/Health Supplements/Home Care/Digestives/Skin care were down by 20/16/21/10/18/10/24% yoy in 4QFY20. Most of these brands have performed well in YTD Feb FY20 and were reflecting success of the new strategy led by new CEO. Focus on power brands, product innovation and distribution expansion has led to market share gain for Dabur in FY20. Dabur can outperform its peers in rural led by higher share of LUPs, natural/ayurvedic portfolio and rising reach.

EBITDA margin contracted by 260bps yoy: GM contracted 66bps to 49.1% (-94bps in 4QFY19 and 80bps 3QFY20) vs. expectation of +100bps. Employee/A&P/Other expenses were up by -5/+3/-11% yoy. Negative oplev resulted into sharp 23% dip in EBITDA. Focus towards cost cutting will support EBITDA margin in FY21.

Call & other takeaways: (1) Co has started all its plants, operating at 60-70% utilisaiton, (2) Lockdown will have Rs 4-4.5bn impact on revenue and Rs 0.6-0.8bn on PAT in 1QFY20, (3) Rural growth will be better than urban in the near term (migration from urban, less impact on agri income), (4) Cost focus will sustain EBITDA margin in FY21 (no cut in headcounts and salaries), (5) Co expects revenues from hand sanitizers to be Rs 1bn in 1QFY21 (Export and Domestic), and (6) Total debt has reduced to Rs 4.7bn in FY20 vs. Rs 5.2bn in FY19. Cash & Equivalents were at stable at ~Rs 36bn in FY20.

Shares of DABUR INDIA LTD. was last trading in BSE at Rs.448 as compared to the previous close of Rs. 428.75. The total number of shares traded during the day was 224367 in over 5034 trades.

The stock hit an intraday high of Rs. 451.25 and intraday low of 421.45. The net turnover during the day was Rs. 98133005.

Source : Equity Bulls

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