Buy Dabur India; target of Rs 565: ICICI Direct

ICICI Direct's research report on Dabur India

Dabur India’s (DIL) revenue fell 12.9% with domestic business reporting resilient numbers with mere 8.4% decline in sales despite manufacturing & supply chain disruptions for most of April. Domestic volumes fell 9.7%. International business saw a steep decline of 21.6% given MENA & Nepal business were impacted by Covid-19 & macro headwinds. The strong growth of 29.2% in healthcare was aided by Chyawanprash & Honey with 700% & 69% growth (on low base considering its off season). Further OTC & ethical portfolio witnessed growth of 34.4% & 10.7%, respectively, driven by new launches. Home & personal care (HPC) segment saw a steep decline of 14.9% impacted by hair oils, home & skincare products. The manufacturing operations for non-essentials only started in April end & demand conditions for HPC segment was also static. However, oral care segment saw growth of 1.4% led by 8.1% growth in Red toothpaste. Foods business saw a 34.4% sales decline with Juices & Nectar seeing 51.4% volume dip. Operating margins expanded 90 bps to 21% with stable gross margins & 150 bps dip in A&P spends. Net profit dipped 6.2%.

Outlook

The current crisis has certainly created new opportunities for DIL and it seems to be in best position to leverage the opportunity by aggressive product developments. We see more than 50% of sales generating categories on high growth path either with strong consumer demand or high opportunity size. We expect 16% revenue growth in FY22 after flat growth in FY21. Moreover, we estimate stable margins, earning CAGR of 11.9% in FY20-22E. We maintain BUY rating with a revised target price of Rs 565.