We retain our low-upside ‘add’ rating on Dabur India with an unchanged target price of Rs 300 per share. We have cut FY16-18 revenue estimates by ~2-3% and EPS estimates for by 3-4% in view of the supply disruption from Nepal; material impact on juices business, late onset of winter; has impacted winter-centric categories like Chyawanprash (health supplements), and weaker rural demand; our channel checks suggest rural demand has slowed down across categories with bigger impact on the HPC segment.
We expect H2FY16e volume growth to decelerate materially to 3-4% (Q3FY16e volume growth likely to dip to 1-2%) due to sharp dip in juices revenues and overall weakness in rural demand. Even as the juices issue can be seen as a one-off which will get resolved with the resolution of the Nepal blockade, we note that the overall demand environment for staples is showing no signs of improvement with our channel checks suggesting further deterioration in rural demand trends.
The latter is likely to impact most companies in the staples space and we expect Street’s topline estimates for H2FY16 and FY17 to be cut before or post the Q3FY16 earnings releases. We shall review our estimates for other companies in the sector over the coming days.