Maintain REDUCE on Dabur - Capitalising rural and healthcare portfolio - HDFC Securities

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

Dabur's 2QFY21 saw strong revenue growth, beating our as well as the street's expectations. Domestic val/vol growth was at 20/17% YoY (HSIE 7/10%). Healthcare portfolio clocked stellar 49% growth, led by continued traction for health products. HPC was up by 9% while Food business declined by 4%. Higher rural mix (rural growth was at ~23% YoY) and strong e-commerce growth (up 200% YoY) supported growth. EBITDA margin expanded despite the ramp-up in ASP (up 40% YoY). Company's new launches are increasing essential portfolio as the core portfolio is more discretionary in nature. Dabur's brand positioning (natural and trusted) and the broader portfolio was always exciting, but new energy infused by the CEO (focus on scaling power brands) seems to be a structural change. We increase our EPS for FY21/FY22/FY23 by 4/5/8%. We roll forward our target price to Sep-22E EPS and value Dabur at 42x P/E to derive a target price of Rs 470. However, rich valuation still does not offer the right entry level at CMP. Maintain REDUCE.

Robust 49% growth in healthcare: Revenue grew by 14% YoY (+4% in 2QFY20 and -13% in 1QFY21) vs expectation of 6% YoY growth. Health Supplements/OTC & Ethicals/Oral care grew by 71/40/24% YoY while Hair Care/Foods clocked 3/4% YoY decline. Ex-institutional, Foods revenue grew by 6% YoY. Rural growth (23% YoY) was ahead of urban (17% YoY). E- comm recorded 200% YoY growth and revenue salience expanded to 6% vs 2% in FY20. International saw a healthy recovery, clocking 6% YoY growth.

Margins resilient: GM expanded 9bps YoY (+142bps in 2QFY20 and -10bps in 1QFY21). Employee/ASP expenses grew by 11/40% YoY while other expenses declined by 3% YoY. EBITDA margin expanded by 50bps YoY to 22.6% (+92bps in 2QFY20 and +91bps in 1QFY21) vs an expectation of 110bps YoY expansion. EBITDA grew by 16% YoY (HSIE +11%). PBT grew by 18% YoY while APAT grew by 11% YoY (lower tax rate in base quarter).

Call takeaways: (1) Secondary growth was ahead of the primary, and channel inventory stood at 15 days; (2) the company is using new launches to expand its distribution pan-India; (3) gross margin in India expanded by 100bps YoY due to improved product mix; (4) Dabur is expanding production capacity for Chyawanprash with a new facility in MP.

Shares of DABUR INDIA LTD. was last trading in BSE at Rs.518.35 as compared to the previous close of Rs. 515.45. The total number of shares traded during the day was 295412 in over 7533 trades.

The stock hit an intraday high of Rs. 530 and intraday low of 517.55. The net turnover during the day was Rs. 154722335.

Source : Equity Bulls

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