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Dabur India Ltd>
  • CMP : 581.4 Chg : 2.25 (0.39%)
  • Target : 700.0 (21.95%)
  • Target Period : 12 Month

05 Aug 2022

Innovation, foray in new categories working well…

About The Stock

Dabur India (DIL) is one of the biggest FMCG companies with a presence in Ayurveda based products across categories. The company has substantial market share in health supplement, OTC & Ethical products, oral care, hair care, home care & juices.

  • The company has a total distribution reach of 6.9 million retail outlets with direct reach of 1.3 million outlets. It plans to increase direct distribution to 1.5 million outlets in next two years. Dabur also derives ~50% of its sales through rural regions with a presence in 90,000 villages
Q1FY23 Results

Dabur reported 9.9% India sales growth led by 5% volume uptick.

  • Consolidated sales were up 8.1% YoY, led by strong growth in beverages
  • EBITDA was at Rs 543.7 crore, down 1.5 YoY, with margins at 19.3%
  • Consequent adjusted PAT was flat at Rs 441.1 crore
What should Investors do?

Dabur’s share price has given 89% return in the last five years (from Rs 303 in August 2017 to 574 in August 2022).

  • We believe Dabur has been increasing its addressable market by foraying into newer categories and leveraging existing brands with extensions
  • We continue to maintain our BUY rating on the stock
Target Price Valuation

We value the stock at Rs 700 on ascribing 55x FY24 earnings multiple

Key triggers for future price performance
  • Though commodity inflation has impacted consumer sentiments and margins in the near term, DIL could benefit from high growth in agri-economy due to increasing agri exports and, in turn, improving rural growth
  • Increasing the addressable market by diversifying in categories like fruit drinks, health foods (under real brand), herbs & baby products under Dabur brand & extending Chyawanprash, Honey into new variants
  • Extensive rural distribution expansion, increasing direct distribution reach & e-commerce presence to support newer & under-penetrated category sales
Alternate Stock Idea

We also like TCPL in our FMCG coverage.

  • Strong innovation & premiumisation strategy in salt, tea, Sampann & Soulful in India market expected to drive sales & margins
  • We value stock at Rs 910 on ascribing 52x FY24 earnings multiple

Key Financial Summary

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 12,155.0 13,520.1 - 11.4
EBITDA 1,792.4 2,002.7 2,253.8 8.4 2,420.1 2,814.1 - 11.7
EBITDA Margin % 20.6 20.9 20.7 - 19.9 20.8 - -
Net Profit 1,447.9 1,694.9 1,742.3 6.4 1,977.1 2,269.5 - 14.1
EPS (Rs) 8.2 9.6 9.9 6.3 11.2 12.8 - 14.1
P/E 70.1 59.9 58.3 - 51.3 44.7 - -
RoNW % 21.9 22.1 20.8 - 21.9 22.7 - -
RoCE (%) 26.1 24.5 24.9 - 25.2 26.7 - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter

Q1FY23 Results: Splendid growth in beverages; newly forayed fruit drinks poised to reach Rs 200 crore sales in FY23

  • Dabur witnessed revenue growth of 8.1% to Rs 2822.4 crore led by 51% growth in foods business (mainly consists of beverage brand ‘Real’). Consumer care business sales de-grew 1.4%, mainly due to high base of health supplements (Chyawanprash & Honey)
  • Hair oils, shampoos, oral care & home care business witnessed growth of 8.1%, 17%, 12.5% & 51.9%, respectively. However, health supplement and OTC & ethicals business saw de-growth of 35.5% & 15.4%, respectively, on a high base of last two years. Beverages (Real) & foods business saw growth of 50.7% 35.7%, respectively
  • On a three-year CAGR basis, health supplements and OTC & ethicals witnessed growth of 9% & 13.9%, respectively, whereas hair oils, shampoos, oral care & home care saw growth of 3.6%, 14.4%, 11.3% & 11.3%, respectively. Similarly, on a three-year CAGR, beverages & foods business saw 20.2% & 15.7% growth respectively
  • International business grew 8% in constant currency. On a three-year CAGR basis, growth has been 5%. Egypt, Saarc, SSA & Hobby business has grown by 17.5%, 17.3%, 35.4% & 88.3% (Turkey), respectively. However, Namaste (US) & MENA region saw 10.3% & 3% decline in sales, respectively. Currency depreciation in Turkish Lira is a drag
  • Despite 35.5% dip in health supplement sales, the company gained market share in Chyawanprash & Honey by 240 bps & 190 bps, respectively. Dabur Glucose saw double digit sales growth. It launched ‘Dabur Green Tea Detox Kahwa’ during the quarter
  • Digestives witnessed double digit growth in both Hajmola & Pudin-Hara on the back of low base quarter impacted by second Covid wave. It launched ‘Hajmola Amla Candy’ in the tasty digestive space
  • In OTC & ethicals category, the company launched Dabur Castor Oil, Dabur Shudd Shilajit, Dabur Shodhit Guggulu, Dabur Aampachak Kadha & Dabur Gulkand
  • In hair oil segment, the company launched ‘Vatika Neelibhriga21’ in Premium Ayurveda therapeutic oil market. In home care, Odonil gained market share by 190 bps. it launched Odonil Neem during the quarter
  • The strong growth in beverages can be attributed to extreme summer, low base and strong traction in newly launched fruit drinks & milk based beverages. Dabur has taken 3-4% price hikes in the category. The company has gained market share in Real fruit juices by 330 bps
  • The company also launched several new variants in beverage category like Real Chocolate frappe & Dabur Kesaria Thandai. Fruit drinks sales is likely to reach Rs 200 crore in FY23. The company aims to clock Rs 500 crore sales in the next three years. Though gross margins in the beverage business are relatively low, scale benefits and market size is much larger
  • The 12.5% growth in oral care category is driven by 13.7% growth in toothpaste. Strong traction seen in Dabur Red, Meswak & Dabur Herb’l. The company gained market share by 20 bps. DIL has become the No. 2 player in South India. The new launch in 2020 ‘Dabur Dant Rakshak’ has not succeeded and the company has withdrawn that brand. Overall oral care category has declined by 3.5% in Q1
  • In oral care, Patanjali Market share has gone down from 13% to 9.7%. However, natural & Ayurveda segment in oral care has become 30% of the category and is continuing to grow faster than overall category growth
  • Skin care segment grew 11.4% in Q1. However, it has remained flat on a three-year CAGR basis. Sanitisers sales declined to almost zero from Rs 100 crore in peak Covid period. This has impacted growth in the category
  • New product launches (launched in two to three years) has been contributing 4.4% to sales. Fruit drinks, health juices, Herb’l toothpaste, Ayurveda shampoo have done well among new products. Cold pressed oils have been growing on e-commerce channel
  • The company has been able to pass on inflation through price hikes in toothpaste, skin care, home care & foods. However, pricing action is delayed in hair oils due to intense competition. Hence, there is margin compression. The price hikes also depend on competition’s pricing action. The company has 15-16% market share in hair oil category
  • Shampoos has been growing at a strong pace for the company (three-year CAGR is 14.4%). Natural segment in shampoos is 10% of the category. The company is looking to increase bottles share in the category, which is currently 16-18% compared to 25% for the industry. Sachet margins are 20-25% compared to 55% margins in bottles. Also, price hikes are a problem is sachets. The price point in sachets for the company is Rs 1-2 and it has not increased any prices in sachets
  • With elevated inflation in crude based packaging material and sales decline of health supplement portfolio, gross margins contracted 224 bps. The 100 bps dip in gross margins is due to mix change & rest due to commodity inflation. Overhead spends were also higher by 160 bps due to high fuel prices (diesel). However, the company was able to save 164 bps and 32 bps in advertisement & employee spends, respectively
  • Operating profit dipped 1.5% to Rs 543.7 crore and operating margin contracted 188 bps. Higher other income & lower tax provisioning led to small 1% growth in net profit to Rs 441.1 crore
  • The company would be increasing its village distribution network to 100,000 villages against 90,000 current coverage. In urban regions, direct distribution would be increased to 1.4 million outlets against 1.2 million in FY22. The company would be adding 6,000 chemist stores in FY23. E-commerce sales is contributing 9% to the company’s sales

Dabur has been continuing the strategy of growing through new product launches, innovations & foraying in newer categories. Though growth in health supplement business (Covid tailwind) has tapered down in last few quarters, the jump in beverage category has more than compensated the dip in health supplement sales. Given, the major part of the company’s raw material is herbs & agri products, margin impact on Dabur is least among FMCG companies. We believe the company would be able to leverage its brands Dabur, Real & Vatika by foraying in different categories. This would pave the way for growth in longer run and offset the impact of low growth in saturated categories like hair oils. We also believe Dabur has the ability to improve its operating margins going forward given dependency on imported raw material is least among FMCG companies. We remain positive on Dabur India. We maintain our BUY recommendation on the stock with a revised target price of Rs 700 / share (earlier Rs 680)

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