Dabur India (Dabur) posted Q2FY20 revenue and an EBITDA growth of 4.1% Y-o-Y and 8.6% Y-o-Y, respectively, in line with our estimates. Adjusted PAT growth of 17.5% Y-o-Y surpassed our expectations due to a lower effective tax rate (11.6% in Q2FY20 versus 20.3% in Q2FY19).
Domestic volume growth of 4.8%
Y-o-Y on a base of 8.1% Y-o-Y beat our expectation, with investments in power brands and robust rural distribution strategy (expanded footprint to 3,000 new villages in Q2FY20) continuing to pay off.
Interestingly, Dabur is one of the few consumer goods companies so far proclaiming higher rural growth than urban. The healthcare segment spearheaded growth (up 11.1% Y-o-Y), while the HPC segment (up 4.3% Y-o-Y) stumbled due to the consumption slowdown. The foods segment (down 5% Y-o-Y) played a spoilsport.
For its overall exposure to stressed group worth `100 crore, Dabur has provisioned for Rs 40 crore of impairment in Q2FY20 (Rs 20 crore in Q1FY20).
Maintain ‘buy’ with a TP of Rs 527.
Growth by category was mixed with the foods portfolio faring the worst. Already well-performing categories sustained their good run—health supplements, home care, digestives and Shampoo clocked YoY growth of 14.4%, 7%, 10.2%, and 12%, respectively. Hair oil, oral care, OTC and skincare reported soft YoY growth, up 2.6%, 4.4%, 4.2% and 1% respectively. Foods declined 5% YoY, squeezed by the overall juice category (against Varun Beverages reporting 20% growth led by CSD). International business (IB) grew 3.2% Y-o-Y in CC aided by a recovery in GCC markets and Hobby.
The company believes the worst is behind and the trending is upwards. Inventory levels continue to remain at 18-20 days and there is no increased channel filling.