Despite flattish GM and 60 bps YoY dip in A&P, domestic EBITDA margin contracted 260 bps YoY to 24.6% dragged by 220 bps jump in staff costs and 90 bps jump in other expenses.
Dabur posted weak and below-estimates Q4 print on both revenue (both domestic/international disappointed) and margin (multiple drags) fronts. Foods and hair care were the key laggards partly dragged by extended winter; most other categories sustained double-digit growth momentum (ex-oral care). Sharp Q4 miss and weakness in consumer demand drive 7-8% EPS cut over FY20-21.
We remain believers in Dabur’s growth narrative and see it as a key beneficiary of Naturals’ resurgence. We note recent price correction has largely priced in EPS cuts and expectation of a weak Q1. We have ‘Buy’ rating with revised TP of Rs 445 (from Rs 495) based on 41x target P/E on Mar-21 financials.
Domestic revenue growth at 5.9% was weaker than our estimate, while international business also posted a weak 1.9% YoY growth. Despite flattish GM and 60 bps YoY dip in A&P, domestic EBITDA margin contracted 260 bps YoY to 24.6% dragged by 220 bps jump in staff costs and 90 bps jump in other expenses.
Management highlighted – (1) Namaste’s North America is expected to grow ahead in low single digit in cc terms, while there are headwinds in category of relaxers in which Dabur operates, it is hopeful that launch of natural variants should aid growth, Namaste-Sahara business continues to remain impacted by currency conversion; (2) GCC contributes 35% to international sales and has significantly higher margin profile; while the company is gaining market share, overall category growth rates are declining. Macro risk continues, however, company is hopeful of recovery from 2HFY20 and (3) higher trade schemes, adverse currency movement and inflation have impacted IBD margin. Management expects pain to sustain for one more quarter before the anniversarisation of currency depreciation.