Dabur India: Downgrade to ‘maintain’ with new TP of Rs 580

We downgrade the inventory to ‘maintain’.

This fall progress was beneath expectations: 1) Dabur delivered home FMCG quantity progress of 25.4% y-o-y in This fall (on a benign base of -14.6% in Q4FY20), which was beneath Road expectations. However this was partially because of pipeline stock correction. 2) Standalone ebitda margins declined 324bp y-o-y led by enter value strain, which Dabur goals to mitigate by value hikes (minimal) and price cuts. 3) Worldwide progress of 21% was a robust underlying efficiency. 4) Total, consolidated internet gross sales/ebitda/clear PAT grew by 25.3%/25.6%/25.5% y-o-y, respectively. We lower our estimates, which ends up in our new TP of Rs 580 (from Rs 630), which means c6% upside. We downgrade the inventory to ‘maintain’.

What stood out: 1) HPC section delivered 33% gross sales progress in This fall, led by sturdy efficiency in oral care (up 42%), whereas Pores and skin Care (+38%) and Shampoo (+33%) 2) F&B section delivered 28% gross sales progress (on a really benign base) even because the institutional enterprise remained impacted. 3) Inside healthcare, Moral (39%) was fairly sturdy on the again of distribution enlargement.

What was lacklustre: 1) Well being complement witnesses some moderation (17% y-o-y, 3.2% two-year CAGR) partially attributed to lowered stock within the pipeline and seasonal decline within the Glucose section. 2) Inside homecare (+24% y-o-y), air freshener class continued to stay impacted. Total, barring oral care, all different classes reported low- to mid-single digits progress on a two-year rolling CAGR foundation, a marked deceleration from Q3.

FY22E has a excessive base for progress and rising prices within the close to time period: 1) Dabur faces a excessive base of FY21 and goals to nonetheless obtain double-digit progress in FY22. 2) Margins are more likely to stay underneath strain for H1 FY22 and enhance within the second half led by even handed value hikes and price cuts. 3) With the Covid-19 second wave, Dabur nonetheless goals to navigate the 12 months with minimal disruption and sees demand of immunity boosting and well being dietary supplements merchandise accelerating once more.

We proceed to see Dabur as the important thing beneficiary of the wave of naturals and Ayurveda and Dabur can also be driving progress by bettering its distribution, direct attain and strengthening its enterprise in areas the place its presence is decrease.

Nonetheless, Dabur’s FY22e PE a number of of 52x, builds in long-term progress expectations of c14%, which if not extreme will want sustained underlying progress revival.

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