Dabur India rating – Buy: Volume growth came as a disappointment

By: |
May 15, 2021 4:00 AM

Company well placed to capitalise on consumers’ changing preference; TP cut to Rs 630 due to tax rate; ‘Buy’ retained

Volumes grew 25.4% y-o-y on a base of -14.6% (Q3 saw 18.1% y-o-y jump on a base of 5.6% y/y).Volumes grew 25.4% y-o-y on a base of -14.6% (Q3 saw 18.1% y-o-y jump on a base of 5.6% y/y).

Dabur India (Dabur) undershot our estimates posting y-o-y growth of 25.3%/25.6%/25.1% in Q4FY21 revenue/Ebitda/adjusted PAT. Domestic volumes at 25.4% y-o-y (base of -14.6%) too belied our estimate, partially on account of a correction in the pipeline. Lower Covid-19 cases in Q4FY21 pushed down healthcare growth rate on a two-year basis (3.7% CAGR in Q4FY21 versus 19.1% CAGR in Q3FY21); however, with cases rising, we expect healthcare growth to perk up.

In light of the current environment, we believe Dabur is well placed to capitalise on consumers’ rising preference for herbal and natural products, and is a strong rural play (45% revenue share). Maintain Buy with a revised TP of Rs 630.

Q4FY21: Growth slows sequentially; consolidated margin steady
What we liked: Consolidated gross margin compressed by only 35bps y-o-y while consolidated Ebitda margin edged up 5bps y-o-y despite standalone gross margin and Ebitda margin compression of 248bps y-o-y and 324bps y-o-y, respectively.

What we did not like: Volumes grew 25.4% y-o-y on a base of -14.6% (Q3 saw 18.1% y-o-y jump on a base of 5.6% y/y).

HPC grew 32.6% y-o-y on a base of -18.9%. Oral care – up 42.1% y-o-y (base -15.8% y-o-y) – led growth with 120bps market share gain. Shampoos (up 33.4% y-o-y), skin & salon (up 37.9% y-o-y) and hair oils (up 24.6% y-o-y) sustained strong recovery. Domestic juices was up 27.1% y-o-y. International business grew 21% CC.

Q4FY21 conference call: Key takeaways
Overall inflation is about 5% across raw materials. The company increased prices by 3% and will take further price hikes. The company has implemented the Continuous Replenishment System (CRS), which would remove the need for pre-season loading, thereby impacting inventory by five–six days. E-commerce contributes 5–6% of total revenue.

Outlook: Positive; maintain ‘BUY’
We expect volumes to be robust, riding company-specific strategies as well as expansion of the herbal market and strengthening rural distribution. Factoring in rise in tax rate as Dabur moves out of the MAT regime, we are cutting the TP to `630 (from `675) but retain ‘BUY/SO’. The stock is trading at 42.3x FY23e EPS.

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