Q2FY24 Review: Dabur India: Gradual recovery expected in volumes

3 Nov 2023 , 11:00 AM

Dabur reported a topline growth of 7.3% (IIFLe 8.5%) driven by domestic volumes growing at 5.8% (3% organic). Standalone business saw a growth of 3%. The sub-par volume growth was on account of a subdued rural demand sentiment especially in South India. The quarter was marked by a whopping 42.6% YoY growth in ad-spend incurred predominantly for HPC category. Analysts of IIFL Capital Services build in a gradual improvement of the demand environment; with rural contributing to ~45-50% to its revenues, the rural demand sentiment recovery will be benefitting Dabur. Maintain BUY; Target Price Rs600. 

Miss on topline, beat in margins: 

Dabur reported a topline growth of 7.3% (IIFLe 8.5%) driven by domestic volumes growing at 5.8% (3% organic). With moderation in inflation, gross margin expanded 295bps in Q2, partially offset by increase in Ad spends by 42.6% leading to Ebitda margin expanding by 50bps and standing at 20.6% in Q2. The PAT (excluding legal costs & amortization) rose by 14.7% (reported PAT grew by ~5%). Home care/ OTC/Digestives saw sales growth of 15%/8%/18% while Beverage revenue declined by 10% due to uneven rainfall distribution in North India (contributes to more than 50% of the sales). 

Expecting recovery in demand environment: 

The sub-par volume growth was on account of rural demand being subdued due to inflationary pressure and uneven distribution of rainfall. However, with MSP increases, investment in rural infrastructure, a robust crop sowing season and the coming festive season, the rural demand sentiment is expected to improve in H2FY24. 

EPS downgrade for FY25/26 by ~3-4%: 

An overall consumption recovery is needed to drive the sales growth. As a result, analysts of IIFL Capital Services have cut their sales estimate for FY24/25/26 by ~2-4%.