Dabur India - Moderation in growth trajectory a tad underwhelming; not unexpected though - ICICI Securities

4QFY21 (+25% volume growth; 2-year CAGR of 3%) performance moderated due to implementation of continuous replenishment system leading to non-occurrence of channel loading at year-end (our interpretation). That said, Dabur achieved outperformance across product portfolio driven by market share gains. We like the (1) continued thrust on innovation, agility and culture change driven by Mohit, (2) utilising e-commerce platform to drive new product development (premiumisation), (3) distribution expansion and increased investment behind power brands to drive growth. Further, turnaround in international business and foods business (now with presence in larger drinks category and LUPs to drive penetration) with recovery in parts of HPC portfolio will be a key growth driver. However, moderation in growth of healthcare segment is a concern. ADD.

- Revenue growth momentum moderated due to non-occurrence of channel loading: Consolidated sales / EBITDA / PAT grew 25% / 26% / 25% driven by broad-based growth across geographies. Domestic FMCG sales grew 30% with 25% volume growth (2-year CAGR of 3%). This performance was driven by (1) strong performance (and recovery in parts of portfolio) in HPC (+33%) - with significant market share gains in oral care (+42%), hair care (+26%) and Home Care (+24%), (2) recovery in foods portfolio (+28%) and (3) strong performance in healthcare segment (+23%) - 150% and double-digit growth in Chyawanprash and Honey respectively. Secondary sales were higher as compared to primary sales.

- Operating margins maintained despite inflationary input and higher ad-spends driven by pricing, better product mix and cost savings: Consolidated gross margin declined 40bps to 48.7% due to inflationary headwinds in most input cost which was partially offset by pricing (~3%) and better product mix (higher contribution from healthcare segment). EBITDA margin was largely flattish at 18.9% (+10bps YoY) as higher ad-spends (+120bps) behind power brands were offset by lower employee cost (-90bps) and other expenses (-80bps) driven by cost savings. Operating margins are expected to be impacted in 1HFY22 due to inflationary input cost which is expected to improve in 2HFY22 with moderation in input cost inflation. Further, management indicated calibrated ad-spends management to support brand building for power brands and new products while maintaining similar level of margins for FY22.

- Broad based performance in International business: Revenue grew 19% (21% constant currency growth), driven by strong recovery in some of the struggling regions and double-digit growth across most geographies - Bangladesh (+47%), Nepal (+21%), MENA (+24%), Egypt (+22%), and USA (Namaste; +12%).

- Outlook: Management continues to focus on double-digit revenue growth (high-single digit volume growth) growth for FY22 by - 1) Calibrated ad-spends, 2) value added new products launches (NPD now contributes ~4-5%) driven by RISE program, 3) distribution expansion in terms of direct reach, chemist channels etc. and 4) recovery in HPC and foods portfolio.

- Other highlights: 1) OCF and FCF grew by 31% / 51% to Rs21bn / Rs18bn, 2) Working capital days improved by 15 days to 15 days largely due to higher creditor days and lower receivables days, 3) E-com now contributes ~5-6% of revenues (grew ~2x in Q4FY21), 4) Channel inventory has reduced to ~17 days (from ~25 days) due to implementation of continuous replenishment system which has now increased in April as channel inventory was increased to tackle the impact of supply chain due to localised lockdowns, 5) Cost savings initiatives under Project Samriddhi led to accrual of ~Rs0.5bn in FY21 and is expected to be ~Rs1bn in FY22, 6) NPD contributes ~4-5% of revenues (management expects this to continue), 7) In terms of distribution, direct reach is ~1.3mn outlets which is targeted to increase to ~1.4mn by FY22 and rural coverage is expected to increase from 60k villages to 80k villages in couple of years, and 8) Capex of ~Rs5.5bn in next 4-5 years for a greenfield project in central India.

- Valuation and risks: Our earnings estimates are largely unchanged; modelling revenue / EBITDA / PAT CAGR of 12 / 14 / 14 (%) over FY21-23E. Maintain ADD rating with DCF-based unchanged target price of Rs 580. At our target price, the stock will trade at 47x P/E multiple March-23E. Key downside risk is sustained weakness in consumption demand.

Shares of DABUR INDIA LTD. was last trading in BSE at Rs.534.7 as compared to the previous close of Rs. 545.45. The total number of shares traded during the day was 394027 in over 11239 trades.

The stock hit an intraday high of Rs. 550 and intraday low of 532.5. The net turnover during the day was Rs. 211714243.

Source : Equity Bulls

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