Dabur Q3 Results Review - Distribution Expansion Driving Share Gains: Systematix

Systematix Research Report

Dabur India Ltd.’s numbers were in-line with our expectations with revenue growth of 7% YoY and domestic volume growth of 6% (4% organic). International business grew strongly by 11.7% with 3% growth in healthcare, 6.6% in home and personal care and 6.7% in food and beverage.

Sharp gross margin expansion of 310 basis points led by softening of inflation and superior segment mix was invested in higher advertising and promotion spends (up 36.1% YoY) and legal costs on the U.S. entity litigation (15 bps of revenue) resulted in Ebitda margin expansion of only 48 bps to 20.5%.

Both HPC and healthcare should grow in high single-digits in FY24 with continued share gains, product innovation and expanding distribution reach. Food and beverage should revert to mid-teens growth in FY25 after a soft FY24 with aggressive portfolio expansion in both foods and beverages.

Moderation in inflation and distribution restructuring in international markets should drive double-digit growth there as well. Margins should stay below 20% for FY24 despite a superior segment mix given the expected pick up in A&P spends and the U.S. litigation costs.

We introduce our FY26 estimates and roll over our valuation to FY26. Considering the aggression shown in extending product categories and distribution expansion driving share gains across categories, we build in 10%/13.4% revenue/profit after tax compound annual growth rate over FY23-26E and upgrade our rating to 'Buy', with a revised target price of Rs 630 (earlier Rs 570), based on 45 times FY25E earnings, in-line with other HPC peers.

The upgrade now makes Dabur our top HPC pick given improving execution, aggressive innovation, strong margin expansion potential and opportunities in healthcare, rural markets and possible merger and acquisition.

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