Dabur - Aspiration To Achieve Ebitda Margin Of ~20%: Dolat Capital

Dolat Capital Report

We recently interacted with the management of Dabur India Ltd. to understand the current demand scenario in the fmcg industry, trend in rural markets, pricing actions and growth outlook etc. Below are the key takeaways from our interaction:

Rural recovery a wait and watch

Over past few quarters, Indian fmcg industry has witnessed gradual recovery, especially in the urban markets. In line with the industry trends, Dabur has posted low single digit volume growth in recent quarters led by strong growth observed in foods business.

The rural growth has continued to lag urban growth due to inflation and unseasonal rainfalls. The management indicated that they have not observed significant signs of improvement in rural markets, albeit rural recovery remains key to Dabur’s growth going ahead.

Aspiration to achieve Ebitda margin of ~20%

In FY23, gross margin had contracted by 230 basis points on a YoY basis due to unprecedented material inflation.

Nevertheless, gross margin expanded by 290 bps YoY to 48.3% in Q2 FY24 led by deflation in raw material prices.

The improvement in gross margin was re-invested in media spends which led to restrict Ebitda margin expansion to mere 50 bps YoY.

We believe, media investments (ad spends to be ramped up from ~7% to 8-9% going ahead) to would drive market share growth, going ahead.

The management expects Ebitda margins at ~19.5% during FY24E and aspires to achieve Ebitda margins of ~20% in the long run.

Focused on enhancing power brands

Dabur’s FMCG portfolio includes nine power brands, with eight power brands in India and one in international market. These brands contribute ~70% to overall revenues.

Our interaction with the management suggested that growth was missing across categories. Furthermore, Chyawanprash portfolio was impacted due to warm winters.

Nevertheless, Dabur Honey and Real has posted decent performance. We believe, power brands would continue to drive growth going forward.

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