Invest
Dabur India Ltd
FMCG | NSE : DABUR
Dabur India (DIL) is one of the biggest FMCG companies with a presence in Ayurveda based products across categories. The company has a dominant market share in health supplement, OTC & Ethical products, hair oils & Juices. Moreover, it is continuously gaining market share in oral care category
The stock price has given a return of 75% in last five years. We believe Dabur is best placed to curb margin pressure given its low dependence on crude based raw material. Further, volume recovery would be fastest given high proportion of revenue contributed by rural regions and increasing agri commodity prices & exports would perk up rural income. We maintain our target price at Rs 680 as well as BUY recommendation ascribing 52x FY24 earnings multiple
In the last 15 days, some important commodity prices have declined sharply specifically after the US Fed rate hike of 75 bps. Global palm oil prices have dipped from US$1800/tonne to US$1300/tonnes, a decline of ~27%. The edible oil manufacturers in India have also started passing on some of these dips through price cuts in last few days. Similarly, crude prices are also showing some signs of dip in last one week. However, it still remains above US$100/barrel. However, we believe its impact on gross margins would only be reflected in H2FY23. With the rise in interest rates globally, commodities are likely to further cool off in the next three to six months. A reflection of that in gross margins would give FMCG companies manoeuvring power to spend more towards advertisement, support new launches and foray into newer categories. This would bring back volume growth in H2FY23.
FMCG stocks have underperformed the market in the last two years given huge liquidity in global markets favours cyclical sectors. However, with increasing volatility in global markets due to high inflation & rising interest rates, investors now would be parking money in defensive sectors like FMCG. Within the FMCG sector, companies with lower weightage of crude & palm oil in their raw material basket would outperform. Moreover, detergent, soaps, oral care and some highly penetrated categories are likely to witness muted growth whereas foods & beverages categories are likely to grow faster in the medium term. Some commodities like tea & copra saw dip in FY22 but crude based derivatives, edible oils (palm, sunflower & soybean), wheat witnessed sharp price increase after Russia-Ukraine war broke-out in February 2022. We believe companies with high proportion of imported commodities in their raw material basket would continue to remain impacted for some more time. We remain cautious on FMCG margins & volume growth in near term.
The FMCG sector has been going through challenging times due to very high commodity inflation in the last one year. The high inflation (~2x last year) in palm oil & crude based derivatives has compelled FMCG companies to take price hike to the tune of 10-15%. Moreover, smaller SKUs grammage reduction were also taken given such price points cannot be tinkered with. Despite such price hikes, FMCG companies have witnessed gross margin contraction to the tune of 200-500 bps in the last two quarters. The incessant price hikes have also led to demand contraction specifically in rural regions. Consumer have been switching to economy brands & smaller SKUs in detergent, soaps & edible oil categories. However, some categories like juices, carbonated drinks witnessed strong demand due to low base & extreme heat in summer season. The last quarter of FY22 saw revenue growth entirely contributed by prices & volume growth was flat to negative. We believe margin pressure would continue in Q1FY23 as well given commodity inflation was persistent until mid-June and volume growth would also be flattish. We expect volume growth to come back to the positive territory in H2FY23.
However, we still like Dabur, Tata Consumer Products and Varun Beverages in our coverage universe given key raw materials like herbs, tea, sugar prices have been benign in the last one year and addressable market in foods, beverages, health & Ayurveda categories is fairly large, which would keep the growth rate high for these companies. Dabur, Tata Consumer Products and Varun Beverages remain our top picks in the FMCG sector.
| Particulars (₹ crore) | Amount |
|---|---|
| Market Capitalization | 89,346.2 |
| Total Debt (FY22) | 1,030.1 |
| Cash and Investments (FY22) | 6,780.3 |
| EV | 85,520.5 |
| 52 week H/L (₹) | 597.1/489.2 |
| Equity Capital | 177.2 |
| Face Value (₹) | 1.0 |
| Key Financials | FY20 | FY21 | FY22 | 5 Year CAGR % (FY17-22) | FY23E | FY24E | (Blank) | CAGR % (FY22-24E) |
|---|---|---|---|---|---|---|---|---|
| Net Sales | 8,703.6 | 9,561.7 | 10,888.7 | 7.2 | 11,997.4 | 13,343.1 | - | 10.7 |
| EBITDA | 1,792.4 | 2,002.7 | 2,253.8 | 8.4 | 2,456.3 | 2,785.8 | - | 11.2 |
| EBITDA Margin % | 20.6 | 20.9 | 20.7 | - | 20.5 | 20.9 | - | - |
| Net Profit | 1,447.9 | 1,694.9 | 1,742.3 | 6.4 | 2,053.4 | 2,304.8 | - | 15.0 |
| EPS (Rs) | 8.2 | 9.6 | 9.9 | 6.3 | 11.6 | 13.0 | - | 15.0 |
| P/E | 64.6 | 55.2 | 53.7 | - | 45.6 | 40.6 | - | - |
| RoNW % | 21.9 | 22.1 | 20.8 | - | 22.5 | 22.8 | - | - |
| RoCE (%) | 26.1 | 24.5 | 24.9 | - | 25.5 | 26.4 | - | - |
ANALYST CERTIFICATION
I/We, Sanjay Manyal MBA (FINANCE) Research Analyst, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/ beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction.
RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock
Buy: >15%;
Hold: -5% to 15%;
Reduce: -5% to -15%;
Sell: <-15%
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
