 "Dabur")
Shares of consumer goods company Dabur surged 7 per cent to Rs 594 apiece on the BSE in Friday's intra-day deals after the management sounded optismistic on near term growth and margin outlook amid improvement in rural sales in the June quarter of FY24 (Q1FY24).
At 9:30 AM, shares of Dabur were ruling 4 per cent higher at Rs 578 as against a 0.47 per cent gain in the benchmark S&P BSE Sensex. The stock was quoting close to its 52-week high level of Rs 610, touched on December 7, 2022.
Dabur's consolidated net profit for the first quarter of the current financial year saw a rise of 3.52 per cent to Rs 456.61 crore, compared to Rs 441.06 crore for the corresponding quarter of the previous year. Sequentially, the net profit was up 55.9 per cent from Rs 292.76 crore-profit reported in Q4FY23.
The revenue from operations for the quarter under study came in at Rs 3,130.47 crore, compared to Rs 2,822.43 crore year-on-year (YoY), registering a rise of 10.91 per cent.
Underlying volume growth stood at 3 per cnt for the India FMCG business, leading to 8 per cent revenue growth. International Business reported a growth of 20.6 per cent in constant currency (CC) terms (10.2 per cent in rupee terms).
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Gross margin improved 80bps QoQ to 46.6 per cent (up 70bps YoY). Higher advertising and promotion (A&P) spends (up ~100bps YoY) was partly offset by savings in other expenses, which meant that Ebitda margin was up 10bps YoY to 19.3 per cent.
According to the management, rural demand, across the board, is seeing recovery. In the near term, with a little negative impact from beverage portfolio, mid-single volume growth should be possible in the India business as other portfolio grows in mid-to-high single digit, it said in a post earnings call.
"Material inflation during Q1FY24 reduced from high single digit to low single digit leading to QoQ improvement in gross margin. If the current inflation becomes deflation going forward, company might surprise on Ebitda margins," it added.
Moreover, allied with synergies in the healthcare portfolio, it expects to achieve double-digit consolidated sales growth in FY24. Badshah masala (up 24 per cent) addition to foods portfolio is adding the growth momentum.
"Dabur has shown the rural recovery ahead of industry, and nearly half of its domestic sales coming from rural markets, which will boost growth momentum. We maintain our BUY rating on the stock with a target price of Rs 660 at 50x FY25E EPS," said analysts at Motilal Oswal Financial Services.
Dabur continues to grow and gain share despite persistent challenges in key categories. The recent softening in inflation and improved rural demand have contributed to a revival in volume growth across its portfolio. The company's commitment to volume growth, widespread expansion, and capturing market share, combined with a strong pipeline of new product developments, go-to-market strategies, and effective cost management, has strengthened analysts' belief in its promising potential.
Analysts at YES Securities are building 9.9 pe cent revenue CAGR over FY23-FY25. Focus on gaining market share in key categories; a play on rural growth as distribution continues to expand; and expanding total addressable market (TAM) through power platform strategy and innovations giving decent visibility for medium-term growth are some of the factors keeping the brokerage bullish on the company.
"At operating level, we expect 15.5 per cent Ebitda CAGR over FY23-FY25 (~200bps Ebitda margin expansion). As gross margin improves, company is prioritizing normalising its A&P spends before seeing benefits at operating level," it said.
Dabur is currently trading at 50x/43x on FY24E/FY25E EPS, discount to its historical average, as we build in 16.2 per cent EPS CAGR. With improving commentary, we continue to have an 'ADD' rating on the stock with a revised target of Rs 625 (Rs 590 earlier), valuing it at ~48x March’2025E EPS, analysts at YES Securities added.
