Maintain ADD on Dabur - Exciting FY21; miss in 4Q margin - HDFC Securities

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

Dabur posted 25% YoY revenue growth (HSIE 28%) with domestic business clocking 28% growth (3% 2-year CAGR). Domestic volume growth was at 25%, 3.5% 2-year CAGR. Despite challenging period, Dabur registered 15/12% domestic value/volume growth in FY21. Health supplement, OTC and oral care (60% of domestic business) posted robust 33% YoY growth in FY21. Market share gain, strong rural demand, distribution expansion, and aggressive marketing efforts supported the show in FY21. New launches across categories continued to witness strong traction with e-comm doubling its mix to ~6%. Gross margin was down by 35bps YoY in 4Q (muted entire FY21). Cost restoration was higher than expected (A&P/employee/other expenses up by 54/17/18% YoY), leading to the EBITDA seeing a miss (up 26% YoY, HSIE 48%). We remain positive on Dabur's renewed focus on core strength (product innovation, rural distribution and target marketing). We maintain EPS estimates for FY22/FY23. We value Dabur at 45x P/E on Mar-22E EPS to derive a target price of INR 550. Maintain ADD.

Story remains on healthcare, OTC and oral care: Net revenue grew by 25% YoY (-12% in 4QFY20 and +16% in 3QFY21). Domestic business grew by 28% YoY (-17% in 4QFY20 and +18% in 3QFY21) vs. expectation of 36%. Revenue growth in 4Q/FY21 for Hair Care was at 26/2%, Oral Care 42/23%, Health Supplement 18/42%, OTC 37/30%, F&B 28/-6%, Digestives 20/2%, Home Care 24/-7% and Skin 38/18%. Most brands saw share gains in entire FY21. Despite some categories growth will be impacted in FY22 due to heavy base, we still expect 11-12% revenue growth during FY22-FY23. International revenue grew by 19/3% in 4Q/FY21, we were expecting 15% growth in 4Q.

Miss in margin: GM declined by 35bps YoY (-66bps in 4QFY20 and 31bps in 3QFY21), GM was flat in FY21. A&P expense at INR 1.5bn was highest 4Q spend in the past five years (bunch up, low spend in 1HFY21). Employee/Other expenses grew by 17/18% YoY. EBITDA margin was flat YoY at 19% (-260bps in 4QFY20 and +9bps in 3QFY21). EBITDA grew by 26% YoY (-23% in 4QFY20 and +16.5% in 3QFY21). APAT grew by 27% YoY to INR 3.8bn.

Call and BS/CF takeaways: (1) Rural is expected to sustain a healthy growth trend in FY22 too; (2) Healthy supplements base will impact FY22 growth (single digit growth expected in FY22); (3) Chywanprash / Honey / Toothpaste gained 170/230/130bps share in 4Q; (4) Food (homemade) business is expected to INR 1bn in FY22 (INR 0.7bn in FY21) and INR 5bn in the next five years; (5) E-commerce grew 2x YoY (5-6% of domestic sales); the segment's increased salience will continue to drive premiumisation; (6) ETR is close to 21% for FY22-FY23; (7) FCF is at INR 18bn vs. INR 12bn in FY20.

Shares of DABUR INDIA LTD. was last trading in BSE at Rs.522.65 as compared to the previous close of Rs. 534.7. The total number of shares traded during the day was 321306 in over 11193 trades.

The stock hit an intraday high of Rs. 535 and intraday low of 519.35. The net turnover during the day was Rs. 168178364.

Source : Equity Bulls

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