Q3FY23 Review: Dabur India: Green shoots of rural recovery

6 Feb 2023 , 10:38 AM

Dabur reported a sales growth of 3.4% (2% below our estimate) and Ebitda/PAT decline of 2.8%/5.4% (2%/5.5% below estimates). Volume declined by 3% YoY, while sales growth on a 3yr Cagr slowed down from 10.5% in Q2FY23 to 9% in Q3FY23, and Ebitda margin was stable sequentially. Growth was driven by Foods, Home Care and Digestives segments. Health supplements bounced back to growth after two quarters of YoY decline. Growth in Hair Care and Oral Care moderated, owing to category weakness.

Excluding Uttar Pradesh and Bihar, which were impacted by a deficient rainfall and late onset of winter, topline grew 8%. However, management stated that there were greenshoots of rural recovery in November and December months. With increased government spending (Infrastructure, Agri-credit, focus on job creation) coupled with moderation of inflation, management sounded confident of a pickup in demand, going forward.

Dabur’s own actions have been impressive – fruit drinks is poised to be Rs2bn, in FY23 Foods is tracking at Rs1.6bn in FY23 and is growing at 30-40%. E-commerce contribution is now at 9% (40% growth YoY). However, an overall consumption recovery is needed to lift growth to a double-digit level in FY24. Analysts at IIFL Capital Services factor in the Q3 miss and gradual recovery in growth (9% organic sales growth in FY24) resulting in EPS downgrade of 6%/4%/6%% in FY23/24/25.

Analysts at IIFL Capital Services maintain BUY with a target price of Rs650.