Buy This FMCG Stock, Shares Can Give Good Returns After Badshah Masala Acquisition

Brokerage firm, Prabhudas Lilladher has suggested buying the stock of FMCG major Dabur in its latest report. The brokerage sees a decent upside on the stock and has set a target price of Rs 615 on the stock.

Revenues see decent growth

Revenues at Dabur India grew 6% YoY to Rs29.9bn (PLe: Rs31.0bn). Gross margins contracted 346bps YoY to 45.4% (Ple: 46.2%). EBITDA declined 3.2% YoY to Rs 6 bn (PLe: Rs 6.4Bn); Margins contracted 191bps YoY to 20.1% (PLe:20.5%). Adj PAT declined 2.9% YoY to
Rs4.9bn (PLe: Rs 5.2bn).

Food segment revenues grew 34.9% YoY while EBIT grew by 38.4%. Margins expanded 231bps/47bps QoQ/YoY to 18.7%. Retail segment revenues grew 43.3% YoY while EBIT loss came in at Rs 4.5mn in 2Q23 vs loss of Rs 9.2mn in 2Q22. The board of the company has declared a dividend of Rs 2.5 per share.

Acquisition of Badshah Masala

Prabhudas Lilladher has changed its EPS estimates by -3.5%/-0.1%/0.1% factoring in adverse RM inflation in FY23 & impact of Badshah Masala acquisition. Dabur had flattish volume growth in 2Q (3-year CAGR 8.7%) with market share gains across 95% of portfolio. "We expect sequential gross margin improvement from 3Q23 given lower inflation & calibrated price hikes. Rural continues to remain impacted by higher product prices and has lagged Urban markets after 5 quarters. Normal monsoons, good harvest & increase in MSP will drive demand in rural in near/medium term," the brokerage has said.

Long term growth remains intact

According to Prabhudas Lilladher the long term outlook remains intact given 1) Innovation led growth strategy with focus on 8 core brands 2) Increasing share in Foods & Beverages & Hair care category 3) LUP Innovations allowing DABUR to leverage its distribution 4) Strong rural distribution coverage of 100k+ villages in 1HFY23 5) Entry into Rs250bn branded spices category with Badshah Masala acquisition and 6) 4-5% incremental sales/year from e-com innovations.

"Dabur trades at 38.0x Sept24 EPS with 14.9% EPS CAGR over FY22-25, 23% ROE and 50% dividend payout. Retain accumulate with 12 month DCF based target price of Rs 615 (Rs 604 earlier)," the brokerage has said.