Dabur, a major player in fast-moving consumer goods, encountered challenges in the third quarter of the current financial year, with projections indicating potential impacts due to a weaker winter, as per insights from Emkay, a brokerage firm.
Despite these challenges, expectations point to approximately 7 per cent growth in consolidated revenue and a 9 per cent increase in earnings for the company. The growth is anticipated to be driven by a 4 per cent volume-based rise in domestic revenue and an 8 per cent surge in international business. Notably, Badshah Masala is projected to contribute around 2 per cent to the consolidated revenue, displaying a significant year-on-year growth exceeding 20 per cent.
The forecast for Q3FY24 includes an expected 4 per cent volume growth, building upon the previous quarter’s 3 per cent growth. The sales distribution across segments suggests an approximate 5 per cent growth in the home & personal care portfolio (45 per cent of sales), about 2 per cent in healthcare (40 per cent of sales) and approximately 6 per cent in foods (15 per cent of sales).
Emkay highlighted the international business’s resilience, expecting sustained double-digit constant-currency growth, translating to an anticipated 8 per cent reported growth. Badshah Masala, specifically, is poised for robust growth in the high twenties and is estimated to contribute 2 per cent to consolidated revenue in Q3FY24.
The international business, buoyed by healthy momentum in the Middle-East North Africa (MENA) region, is anticipated to achieve double-digit growth in constant currency, showcasing an estimated 8 per cent growth.
However, despite positive prospects, Dabur’s year-on-year Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margin expansion is expected to be sluggish due to increased advertising and promotion needs.
On the margin front, a recovery trend is expected in gross margin, projected to expand by approximately 250 basis points to 48 per cent in the third quarter. This expansion is anticipated to offset the elevated advertising and promotion expenses, representing a significant absolute increase year-on-year, reaching 7.8 per cent of sales.
The consolidated EBITDA margin is likely to see a modest expansion of 10 basis points year-on-year to 20.2 per cent, resulting in an anticipated 8 per cent year-on-year growth in EBITDA. Overall, earnings growth is projected to hover around 9 per cent year-on-year.
The positive outlook for Dabur stems from its focused strategies encompassing market share growth, portfolio transformation, category extensions, bolstering distribution, and maintaining financial capacity for potential inorganic opportunities.
Despite immediate challenges, the stock trades at a 5 per cent discount compared to its last five years’ average forward P/E, carrying a one-year forward P/E of 44 times. Emkay analysts uphold a ‘buy’ rating on Dabur, setting a target price of Rs 650.
Financially, Dabur’s profits for the September quarter ascended by 5 per cent to Rs 515 crore. The FMCG company witnessed a 7.3 per cent annual surge in revenue to Rs 3,204 crore. Simultaneously, EBITDA experienced a 10 per cent rise to Rs 661 crore, with margins expanding by 50 basis points to 20.6 per cent.
Dabur, with a market capitalisation a little over Rs 1 lakh crore, competes with industry giants like ITC, Britannia and Hindustan Unilever within this segment.
