Dabur India - Execution excellence; Jigsaw falling in place - ICICI Securities

3QFY21 (+18% volume growth; second consecutive quarter of high double-digit volume growth) highlights results of cultural change with a bias for action. It achieved significant outperformance across product portfolio driven by strong growth in power brands and value added new product launches. We like well-timed launches in Healthcare (building on the current consumer focus on immunity) and in HPC (oral care, hair oils growth accelerated), utilising e-commerce platform to drive new product development (premiumisation), distribution expansion and increased investment behind power brands to drive growth. Further, International business is also performing well across geographies. Likely turnaround in the foods business is a key growth driver. Reiterate ADD.

- Continued revenue growth across product portfolio: Consolidated sales / EBITDA / PAT grew 16% / 16% / 18% driven by broad-based growth across geographies. Domestic FMCG sales grew 20% with 18% volume growth. This performance was driven by strong growth in healthcare (+28%) as power brands across the segment saw significant surge in demand along with good traction in immunity boosting new product launches and strong performance in HPC (+16%) driven by strong double-digit growth in Oral care, Shampoo and Hair Oils. Foods portfolio-recovered well and grew 5% (ex-enterprise growth of 16%).

- Broad based performance in International business: Revenue grew 13% (14% constant currency growth), driven by strong recovery in some of the struggling regions and double-digit growth across most geographies - Turkey (+33%), Bangladesh (+17%), Nepal (+13%), MENA (+11%), Egypt (+10%), and USA (Namaste; +8%).

- Operating margins maintained despite inflationary input and higher ad-spends driven by better product mix and cost savings: Consolidated gross margin expanded 30bps to 50.4% as headwinds of inflationary trends in most input cost was largely offset by better product mix (higher contribution from healthcare segment). EBITDA margin was largely flattish at 21% (+10bps YoY) as higher ad-spends (+170bps) behind power brands were offset by lower employee cost (-110bps) and other expenses (-40bps). We expect higher healthcare business contribution leading to sustainable gross margin expansion which is likely to be used to (along with calibrated price actions) absorb inflationary input cost in the near term. Further, management indicated aggressive ad-spends to support brand building for power brands and new products while maintaining similar level of margins to be funded through gross margin expansion and cost saving initiatives.

- Outlook: Management continues to focus on growth in power brands driven by - 1) Investing behind brands with increased ad-spends, 2) value added new products launches (NPD now contributes ~4-5%) driven by RISE program, and 3) distribution expansion in terms of direct reach, chemist channels etc.

Shares of DABUR INDIA LTD. was last trading in BSE at Rs.515.25 as compared to the previous close of Rs. 527.6. The total number of shares traded during the day was 200429 in over 4134 trades.

The stock hit an intraday high of Rs. 532.25 and intraday low of 511.35. The net turnover during the day was Rs. 104767879.

Source : Equity Bulls

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