Dabur India Q3 Results Review - Weak Rural Demand Dents Volumes; But Outlook Getting Better: Motilal Oswal

Motilal Oswal Report

Weak rural demand and delayed winter led to 3% volume decline for Dabur India Ltd. in 3QFY23. Management indicated that rural demand started exhibiting green shoots towards the end of Q3 FY23 and the outlook is getting gradually better.

Dabur’s Q3 FY23 consolidated sales remained flat YoY at Rs 30.4 billion (our estimate: Rs 32.1 billion). Ebitda/profit before tax remained flat YoY at Rs 6.1 billion/Rs 6.2 billion while adjusted profit after tax declined 5.3% YoY to Rs 4.8 billion (our estimate: Rs 6.5 billion/Rs 6.8 billion/Rs 5.3 billion), respectively.

The company likely posted 3% volume decline YoY in Q3 FY23 (our estimate: up 3%). Gross margin contracted 280 bps YoY to 45.5% (estimate: 46.5%).

As a percentage of sales, lower ad-spends, stable staff cost and other expenses restricted Ebitda margin contraction to 130 bps at 20.0% (estimate: 20.3%) during the quarter.

Dabur’s Q3 FY23 standalone sales grew 3.3% YoY to Rs 23.0 billion. Ebitda/ adjusted profit remained flat YoY at Rs 5.0 billion/Rs 3.9 billion, respectively. Ebitda margins remained flat YoY at 21.6%.

We have also baked in financials of the recently acquired ‘Badshah’ brand from Q4 FY23 onwards.

Despite near-term challenges, Dabur (with nearly half of its domestic sales coming from rural) remains a good play on the incipient but gradual rural demand recovery theme.

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