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Mantain REDUCE On Dabur - In-line 2Q, slight beat in domestic volume - HDFC Securities

Posted On: 2020-08-04 09:33:31


Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Dabur's 1QFY21 was broadly in line with a beat in domestic revenue. Consolidated revenue/EBITDA was down by 13/9% YoY (in-line) with domestic revenue/volume decline of 7/10% YoY (HSIE -13%). In domestic, HPC and Food portfolio saw 15% and 34% YoY decline while Healthcare recorded a strong 29% YoY growth (Honey and Chywanprash up by 69% and 7x YoY). Market share gain (across portfolio), rural growth (+1% YoY) and strong demand for healthcare products were the key highlights of the result. Performance in oral care (+1% YoY) was better than Colgate (-4%YoY), and the company gained market share in toothpaste. Juices remained under pressure as OOH consumption impacted LUPs. Ecommerce saw strong growth and revenue mix jumped to 5.6% (1.5% earlier). The international business saw a 22% YoY decline with massive impact in MENA and Egypt. Bangladesh clocked 14% cc growth (healthy growth for Marico too). Margins saw improvement aided by (1) lower consumer offers, (2) price increases and (3) heightened focus on cost rationalization. We expect a gradual recovery, aided by a healthy pick-up in rural and healthcare portfolio. We maintain our EPS for FY21/FY22/FY23. We value Dabur at 42x P/E on Jun-22E EPS and derive a target price of Rs 433. Maintain REDUCE.

Healthcare drives revenue: Revenue declined by 13% YoY (+9% in 1QFY20 and -12% in 4QFY20) vs HSIE estimated 14%. Domestic business declined by 7% YoY while International dipped by 22% YoY. Hair Care/Home Care were the worst impacted, declining by 23/31% YoY, while Healthcare/OTC saw strong growth of 53/34% YoY. Secondary sales fared better than primary, clocking a 5% YoY decline for the quarter and 7% YoY growth in June. The trend continued in July (up 5-6% YoY). GT/MT/CSD clocked decline of 13/28/50% YoY, but e-commerce saw robust growth.

Margins resilient: Gross margin was flat at 49.4% (-9bps in 1QFY20 and -66bps in 4QFY20). Price increase and low consumer offers were offset by 3% YoY inflation in the RM basket. Employee/ASP/other expenses declined by 3/28/18% YoY, leading to an EBITDAM expansion of 126bps YoY to 21% (+122bps in 1QFY20 and -314bps in 4QFY20). EBITDA declined by 7% YoY to Rs 4.2bn (in-line). APAT declined by 10% YoY to Rs 3.4bn.

Call takeaways: (1) Channel inventory stood at 16 days vs 23 days in April; (2) the company is focused on expanding its presence in e-commerce with exclusive products and increased allocation of ASP to digital media; (3) rural business grew by 1% YoY while urban declined by 13% YoY; (4) the company gained market share across several categories; (5) GT has shown signs of recovery while MT continues to be under stress.

Shares of DABUR INDIA LTD. was last trading in BSE at Rs.507 as compared to the previous close of Rs. 509.85. The total number of shares traded during the day was 58154 in over 1571 trades.

The stock hit an intraday high of Rs. 516 and intraday low of 506.05. The net turnover during the day was Rs. 29665626.


Source: Equity Bulls

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