Maintain ADD on Dabur - Outperformance continues; strategies playing out - HDFC Securities

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

Dabur's Q1 performance was inspiring with a beat in revenue, volume and EBITDA. Revenue growth was at 32% YoY (HSIE 22%), 2-year CAGR at 7%. Domestic revenue/volume growth were at 35/34% YoY, 2-year CAGR at 12/10% vs. Britannia's 12/13%, Nestle's 8/6%, Marico's 7/2%, Colgate's 4/0%, Emami's 3/2% and HUL's 2/0%. Dabur's healthcare/HPC/F&B grew 30/26/80% YoY (vs. +29/-15/-34% in Q1FY21 and +23/+33/+28% in Q4FY21). The international business saw continued recovery, growing 29% YoY. EBITDA growth was at 33% YoY (HSIE 23%), while EBITDA margin was in line at 21%. We remain positive on Dabur's ability to deliver strong revenue growth, led by its positioning as a natural and trusted brand along with its power brands strategy. We maintain our EPS estimates. We increase our target multiple to 50x P/E (45x earlier) on Jun-23E to factor in its consistent outperformance vs peers and result-oriented renewed strategies. Our target price is INR 625. Maintain ADD.

Healthcare/oral care/hair care outperform: Net revenue grew by 32% YoY (- 13% in Q1FY21 and +25% in Q4FY21), ahead of our expectation of 22% YoY growth. Domestic business grew by 36% YoY with 34% YoY volume growth. Despite a heavy base, health supplements/digestives/OTC/ethical were up 25/16/52/51% YoY. In HPC, oral care/hair oils/shampoo/home care/skin and salon saw growth of 21/38/41/31/-5%. Food saw 18% YoY growth, while beverages was up 85% on a low base and in the peak season. Dabur saw strong market share gains in oral care, hair oils, home care, Chyawanprash and juices. International revenue grew by 29% YoY with 34% YoY cc growth.

Maintains EBITDA margin in high inflation: GM contracted by 131/64bps YoY/QoQ (-10bps in Q1FY21 and -35bps in Q4FY21) to 48%. It was impacted by steep raw material inflation and restricted price hikes (~3%). Employee/ A&P/other expenses grew by 15/29/34% YoY. Dabur, through its cost savings initiatives, saved INR 250-270mn in Q1FY22. EBITDA margin expanded 10bps YoY (+91bps in Q1FY21 and +5bps in Q4FY21) to 21.1% (in line with HSIE). EBITDA grew by 33% YoY (HSIE 23%). PBT grew by 34% YoY while PAT grew by 28% YoY on increase in tax rate.

Call takeaways: (1) Urban will see higher growth vs. rural in FY22 (due to the low base), but rural will continue to outpace urban in the medium term. (2) The company has introduced real juice SKUs at INR 10/20 for the rural market, which is seeing good traction. (3) The company has experienced high inflation and taken 3% price hike. (4) No plans to take a price hike in Q2, but may take in Q3 if inflationary pressure continues. (5) Capex of INR 5.5bn over the next three years for the Indore plant. (6) International business will deliver double-digit growth in a stable environment. (7) It expects A&P spend at 9% of sales in the next 2-3 years. (8) It doubled its e-commerce sales, which now contribute towards 8% of domestic sales.

Shares of Dabur India Ltd. was last trading in BSE at Rs. 588 as compared to the previous close of Rs. 614. The total number of shares traded during the day was 281129 in over 11610 trades.

The stock hit an intraday high of Rs. 615.95 and intraday low of 586.7. The net turnover during the day was Rs. 167961722.

Source : Equity Bulls

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