It’s business as Usual – Dabur India

Update on the Indian Equity Market:

On Friday, disappointing US GDP data led to weakness in the broader Asian markets. Nifty50 ended 0.3% lower at 11,074. PHARMA (+3.6%), PSU BANK (+1.4%), and REALTY (+1.4%) led the sectoral gainers while MEDIA (-0.9%), FINANCIAL SERVICES (-0.6%), and PRIVATE BANK (-0.3%) led the laggards. Among the stocks, SUNPHARMA (+5.5%), CIPLA (+5.1%), and GRASIM (+5.0%) were the top gainers while EICHERMOT (-2.7%), RELIANCE (-1.8%), and HDFCBANK (-1.7%) led the losers.

Mr. Mohit Malhotra, CEO, Dabur India discussed the company’s 1QFY21 performance with CNBC TV-18 on 31^st July 2020. Here are the edited excerpts:

• In oral care, the toothpaste category declined 18.8% in volume terms. In terms of primary sales, grew 2.6% with Dabur Red growing ~8%. They gained market share of 63bps to reach an all-time high of 16.1% market share in toothpaste. In the markets of Orissa, Andhra Pradesh, and Chennai, Dabur is the number 1 brand in the toothpaste category.
• Sequentially, the business has only improved. Witnessed a decline of 40% in April, in May saw growth of 2%. In June, growth is back to pre-covid levels of 6-7%, as the pipeline filling is happening.
• July also saw a similar trend, though pipeline filling has happened. This is because DIL’s portfolio has clear tailwinds due to the focus on the healthcare portfolio.
• Although there are certain categories and certain geographical areas that are still not performing well, overall, DIL is back to pre-covid levels.
• Healthcare, immunity, and hygiene categories are definitely seeing a tailwind. Despite the healthcare business going down by ~40% in April has shown a growth of 30% plus.
• The Health & Personal care and Food categories are dragging the performance. Items such as hair oils, skincare, and home care which are more discretionary in nature are not performing as well. The out-of-home consumption is majorly impacted since people are not going out, consumption of 200ml juices has declined.
• The modern trade channel has declined by almost 25% during the quarter and continues to remain under pressure. Department stores such as Big Bazaar and DMart continue to operate below the normal levels. The open format outlets which offer home delivery to consumers are doing better. E-commerce channel has seen significant growth.
• Other channels not performing include Horeca, institutional and enterprise business.
• Barring localized lockdowns, all states seem to be doing well. The highest growth trajectory is seen in the Southern parts of India.
• The rural markets have always performed very well for Dabur and there is a 1000bps difference in the rural performance vs urban performance.
• The company is on the growth path now and looking at low to mid-single-digit growth in 2QFY20, with the tailwinds for the healthcare products and new products. Mr Malhotra is of the opinion these tailwinds are here to stay. With the penetration of products like Chyawanprash increasing, habits are formed and these habits will last even if Covid disappears.
• The HPC category has seen benign raw material and packaging material costs. In healthcare, the surge in demand has caused a 3% inflation in the price of the herbs, which has been offset to a certain extent by an increase in prices. Overall, there will be margin improvement as the healthcare category which is margin accretive grows.
• DIL is looking to do a capex of Rs 3000-3500 mn in line with business requirements.

Consensus Estimate: (Source: market screener website)

• The closing price of Dabur India was ₹ 513/- as of 31-July-2020. It traded at 55x/ 48x the consensus earnings estimate of ₹ 9.3/10.7 per share for FY21E/ FY22E respectively.
• The consensus target price of ₹ 507/- implies a PE multiple of 47x on FY22E EPS of ₹ 10.7/-.

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