Dabur Q4 Review: Analysts Expect Rural Demand, New Launches To Aid Growth

Analysts expect innovation, rising share in foods and beverages, costs cuts, expanding rural distribution, and new launches to aid Dabur India Ltd.'s overall growth.

The optimism stems from the ayurveda products maker reporting an 8% year-on-year increase in consolidated revenue in the quarter ended March even as higher raw material costs and subdued consumption weighed on its bottom line and margin.

The full fiscal witnessed a steep inflation of about 12.5%, eroding its margin like most other consumer goods makers. Dabur, however, gained market share across 99% of its product portfolio.

The company's management in a post-earnings analyst call said an early summer season, good harvest, and predictions of a normal monsoon are expected to result in a good demand in FY23.

But it also warned that inflationary pressures and a resultant consumption slowdown is likely to persist in the near-term even as it sees rural demand recovery to begin from the second half of FY23. Dabur aims to maintain FY23 operating margin at current levels with tight cost control.

Some of the strategies the company said it has adopted to drive growth are:

• Accelerated pace of e-commerce innovations as it expects e-commerce to account for 20% of sales in the next four years from 6% of sales in FY22.

• Intense direct distribution expansion.

• Aggressive advertising spends.

• Push more low-unit packs amid rampant downtrading.

Shares of Dabur fell as much as 2.96% but pared some of the losses to trade 1.85% lower as of 9:40 a.m. on Friday.

Of the 45 analysts tracking the company, 31 maintain a ‘buy', 12 suggest a ‘hold' and two recommend a ‘sell', according to Bloomberg data. The average of the 12-month consensus price target compiled by Bloomberg implies a 20.3% upside.

Here's what analysts have to say about Dabur's Q4 FY22 performance.

Motilal Oswal

• Maintains ‘buy' at a target price of Rs 630 apiece.

• The medium-term narratives on revenue growth are highly attractive, led by the initiatives taken by the new CEO in recent years on power brands, new launches, distribution expansion, and better analytics. As the impact of investing in these initiatives abates, Dabur's margin would expand in FY24.

• In the near term, Dabur's sales visibility is better than its peers. Higher pricing power versus peers also augurs well for Dabur's earnings.

• Reduces FY23 EPS forecast by 4% but maintains FY24 EPS estimate.

• The inability to increase the pace of growth in its core Healthcare business has been the biggest disappointment.

Prabhudas Lilladher

• Retains ‘accumulate' with a target price of Rs 603 apiece.

• Near-term growth pressures expected given input cost inflation, slowdown in rural demand and overall decline in discretionary consumption.

• Long-term outlook positive given innovation-led growth strategy; increasing share in foods and beverages category; low-unit packs allowing the company to leverage its distribution; cost-saving initiatives; strong rural distribution coverage of 90,000 villages; aggressive e-commerce expansion with incremental sales of 4-5% every year.

• Dabur remains a formidable play on recovery in rural demand in the coming quarter.

Edelweiss Securities

• Maintains ‘buy' but cuts target price to Rs 685 from Rs 720 earlier.

• To capitalise on changing consumer preferences, Dabur is launching ayurveda-based products in oral care, hair care, health supplements, etc., which are likely to spur overall growth.

• The company is expected to benefit from growth recovery in rural areas, which generate 45-50% of its total sales.

• High healthcare base a challenge but a diversified portfolio will aid growth

• Further rise in competitive intensity in categories like shampoo, oral care, hair oils, juice (ITC has come out with aggressive ads and national rollout) may put pressure on volumes.

Dolat Capital

• Maintains ‘reduce', cuts target price to Rs 562 from Rs 578, still implying a potential upside of 6%.

• Consumption slowdown was more than anticipated.

• Revises its FY23/24E EPS estimates at Rs 11.2/12.5 to factor in slowdown in rural markets and downtrading in urban areas.

• However, it has maintained margin estimates at 20.3% to factor in price pass on and operating efficiencies.