Dabur’s 2QFY18 earnings print was on expected lines. Noise element in the numbers aside, there were a couple of positives that did stand out – superlative growth and market share gains in oral care being the key one. Even as we appreciate the growth acceleration opportunity for Dabur if it leverages its naturals brand equity well, we believe potential uptick is well priced in. Our EPS estimates remain broadly unchanged. Retain Reduce rating and raise TP to Rs 315 as we roll over to September 2019E.
Operational performance subdued, as expected: Dabur reported 1% y-o-y decline in consolidated revenues to Rs 19.5 bn; underlying c/c growth adjusted for GST changes stood at 8% y-o-y. On absolute terms, gross profit declined 3% y-o-y to Rs 9.8 bn and Ebitda grew 3% y-o-y to Rs 4.16 bn aided by tight cost controls. We do note that both rupee revenues and absolute rupee costs were impacted by sharp depreciation in currencies of some of Dabur’s international markets. Recurring PAT grew 1% y-o-y to Rs 2.83 bn.
Robust pick-up in domestic business, international business a drag: Underlying domestic business in India reported 10% y-o-y revenue growth aided by 7.2% volume growth and 2.8% price/mix-led growth (1.5% pricing growth). International business reported 3.9% c/c growth; however, currency devaluation in overseas markets resulted in significant translation impact.
EPS estimates broadly unchanged: We have broadly retained our EPS estimates; we note our revised revenue/margin estimates are not comparable to earlier estimates due to GST-led changes. Near-term volatility in reported numbers aside (this is likely to worsen further from 3Q as demonetisation base kicks in), we like the medium-term potential of Dabur’s broad portfolio and believe that it will likely end up benefiting from the industry disruption caused by Patanjali. That said, we believe this is priced in at 38X FY2019e EPS.