Dabur Q1 Results Review: Shares Gain As Analysts Raise Target Price On 'Strong Growth'

Shares of Dabur India Ltd. rose 6.5% on Friday after its first-quarter earnings mostly met expectations, prompting most brokerages to raise their target price on the stock

The ayurvedic product maker's net profit rose 3.5% over the previous year to Rs 456.61 crore during the April-June period, according to an exchange filing. That compares with the Rs 461.56 crore consensus estimate of analysts tracked by Bloomberg. The company's profit, excluding amortisation related to the Badshah acquisition, grew 8% to Rs 475 crore.

Dabur India Q1 FY24 Highlights (YoY)

• Revenue rose 10.9% to Rs 3,130.5 crore. (Bloomberg estimate: Rs 3,118.4 crore).

• Operating profit rose 11.23% to Rs 604.76 crore. (Bloomberg estimate: Rs 600.98 crore). This comes after four straight quarters of Ebitda decline.

• Margin remained flat at 19.3%, exactly in line with estimates.

• Revenue for domestic business rose 8% to Rs 2,347 crore, while that of international business grew 20.6% in constant currency terms.

• Advertisement spends rose 30% to Rs 204.34 crore.

• Domestic volume growth stood at 3% versus 1% in the March quarter.

The company saw strong growth across geographies, with rural areas bouncing back in the first quarter. Rural grew 8%, while urban grew 10%.

Most analysts expect Dabur's potential for healthy topline growth. The higher ad spends, they said, reinforce the company's goal of gaining market share across categories and focusing on portfolio expansion to drive growth. In Q1, Dabur gained market share across 90% of the portfolio. However, a slowdown in rural demand due to lower government spending or monsoon failure could impact Dabur's revenues significantly.

Dabur has planned capex of about Rs 400–450 crore for the full fiscal. The company's growth strategy includes investing in power brands, introducing new products, and exploring potential acquisitions, particularly in direct-to-consumer brands for premium play, if financially worthwhile.

Shares of the company gained 2.68% to Rs 569.90 apiece as of 10:25 a.m., compared with a 0.49% gain in the benchmark Nifty 50.

Of the 50 analysts tracking the company, 30 have a ‘buy' rating, 14 suggest a ‘hold', and two recommend a ‘sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 7.5%.

Here's what brokerages have to say about Dabur's Q1 FY24 results:

Motilal Oswal

• Maintains 'buy' rating with a target price of Rs 660 apiece, implying a potential upside of 19%.

• Dabur has shown the rural recovery is ahead of industry, and with nearly half of its domestic sales coming from rural markets, it will boost growth momentum.

• It continues to grow and gain share despite persistent challenges in key categories. The recent softening in inflation and improved rural demand have contributed to a revival in volume growth across its portfolio.

• The company's commitment to volume growth, widespread expansion, and capturing market share, combined with a strong pipeline of new product developments, go-to-market strategies, and effective cost management, strengthens our belief in its promising potential.

• Moreover, the increased investment in advertising and promotions is expected to provide an additional boost to its growth trajectory.

Jefferies

• Retains 'hold' rating with an upward revised target price of Rs 600 from Rs 545 earlier, implying a potential upside of 6%.

• The brokerage retained 'hold' as it sees better 12-month opportunities elsewhere in the space.

• Gross margins improved slightly, but the company ploughed-back some savings through higher ad spends, a step in the right direction.

• Ebitda margin should still expand YoY in FY24 versus subdued levels in FY23.

• In a base case scenario, the brokerage forecast 10% annual growth in revenues over FY23–26E, with 40 basis points of margin expansion. It forecast earnings per share to rise at a 12% CAGR over FY23–26.

• However, key risks include a sharp rise in input prices, slow volume growth, and the de-rating of consumer multiples.

Nuvama Institutional Equities

• Assigns 'buy' rating with a target price of Rs 725 apiece, up from Rs 705 earlier, implying a potential upside of 30.6%.

• Dabur is well placed to capitalise on consumers' increasing preference for herbal and natural products.

• Food as a segment is very salience; 25% of business comes from the summer salience food portfolio; Home and personal care as well as health care, will be even more salient in the coming quarters.

• A slowdown in rural demand could impact Dabur's revenues significantly. A further rise in competitive intensity in categories like shampoo, oral care, hair oils, and juice (ITC has come out with aggressive ads and a national rollout) may put pressure on volume.

Yes Securities

• Recommends 'add' rating with a target price of Rs 625 apiece, implying a potential upside of 12.6%.

• The big takeaway from earnings was the positive commentary on near-term growth and the margin outlook. The company expects volume growth to be better going ahead in the domestic business as rural demand recovery signs are already visible. This will be well supported by investment in power brands as well as innovations.

• Even on international business, moderation of inflation and distribution changes is expected to lead to double-digit growth for the fiscal.

• The brokerage is currently building a 9.9% revenue CAGR over FY23–FY25E.

• Dabur's power brand strategy of focusing on nine of its major brands that account for a majority (70%) of the company's consolidated revenue will continue to pay dividends in the medium to long term.