Dabur India Q3 Result Review - Inline; Maintain 'Buy': Axis Securities

Axis Securities Report

Dabur India Ltd.’s consolidated revenue grew by 7% YoY to Rs 3,255 crore ( versus our estimates of 8%), with India business volume grew 4% (6% in organic volume growth) led by stable growth across categories. However, the healthcare and winter portfolio segment was impacted due to delay in onset of winters.

The company’s International business grew 12% YoY (in constant currency terms). The management highlighted that the demand slump in rural areas has bottomed out and is now seeing a recovery and expects further recovery in the coming quarters.

Dabur’s gross margins stood at 48.6% (up 310 basis point YoY). Ebitda margins were at 20.5% (up 48 bps) lower as it got impacted due to higher ad-spends, up 36% YoY. PAT came in at Rs 514 crore, up 8% YoY.

Fast moving consumer goods companies have been battling with a rural slowdown for the last few quarters on account of high consumer inflation eating their wallet share. This, in turn, has been impacted their overall volume growth. Although, in this quarter, rural demand for Dabur grew 6% ahead of urban growth of 3% and we expect with the company overall focus on increase rural distribution reach, coupled with overall demand improvement in rural led by the softening of core inflation, an increase in government spending will support the company in coming quarters.

We continue to believe in Dabur’s long-term growth story and like

1. The management’s focus on strong execution – market share gains, go-to-market initiatives, deepening rural penetration,

2. Strong management bandwidth, and

3. Continued investments in the brands, distribution infrastructure, and innovations.

4. Capital infusion in setting up new manufacturing plant.

These factors drive our confidence in the long-term growth prospects of the company.

Valuation and recommendation:

We estimate Revenue/Ebitda/ profit after tax compound annual growth rate of 11%/14%/14% over FY23-26E and maintain our 'Buy' rating on the stock with a unchanged target price of Rs 635/share.

The target price implies an upside of 18% from the current market price.

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