Sharekhan Bets On Dabur India For 18% Potential Upside, Growth Prospects To Improve Ahead

Sharekhan, a leading brokerage firm has given a buy call to Dabur India (Dabur) for a potential upside of 18%, it has estimated a target price of Rs 645 apiece for 12 months. Dabur to post resilient mid-single digit volume growth in Q1FY2023, which is better compared to flat sales volume/volume decline for peers (vs. high base of 34% volume growth in Q1FY2022).

Stock Outlook & Performance

The current market price (CMP) of Dabur India is Rs 548.35 apiece, it was opened at Rs 580.25 apiece on July 15, 2022. The stock of the company hit the 52-week low last month on 17th. Currently, the stock is trading Rs 66.1 apiece above its 52 seek low levels. The 52-week low was recorded on September 24, 2021, the stock is trading at Rs 176.7 apiece below the 52-week high levels.

According to Sharekhan's estimated target price of Rs 645 apiece and the CMP of the stocks, it has the potential to gain nearly 18% in12 months.

In the previous 1 week, it has gained 0.82%, whereas in the past 1 month 0.49%, respectively. On the other hand, in the last 1 year, the stock has slid 6.18%. It gave good returns on 3 & 5 years compared to short-term investment. In 3 years it gave 33.52% and in 5 years it gave 80.32%, respectively.

 

Dabur India Limited in Q1FY2023

Dabur highlighted achieving mid-single digit volume growth in its domestic business in Q1FY2023 (versus 34% volume growth in Q1FY2022), driven by strong double-digit growth in its foods and beverage business. This is better compared to some of the other FMCG peers who are likely to post flat or low single-digit decline in sales volume. The foods and beverage business has gained momentum in the past two quarters due to receding scare of the pandemic and is likely to maintain it in the medium term, supported by a slew of new launches. This along with better monsoon (7% above normal monsoon as of now) will help volume growth momentum to improve in the quarters ahead (especially in Q3 and Q4). Margins would remain under pressure in the near term. However, expected softening in commodity prices will help margins to improve in H2FY2023.

Domestic sales volume to grow in mid-single digit; Trajectory likely to improve in H2

Dabur's domestic business volume growth is expected at mid-single digit, which is better if compared with high base of 34% volume growth in Q1FY2022. We expect volume growth to remain in mid-single digit for another quarter. Sustained market share gains in product categories, higher growth in the foods and beverages business, and likely improvement in rural demand with normal monsoon would help volume growth to recover to high single digit in H2FY2023.

Food and beverages business to gain from strong season and receding pandemic risk

Dabur's foods and beverages business was affected by lower out-of-home consumption during the season affected by the pandemic. Despite muted performance of the category in the past two years, Dabur has consistently gained market share in the nectars and juices business. After two years of lull, the food and beverages business is expected to post strong double-digit growth in Q1FY2023 due to improved demand for out-of-home consumption products, which will help Dabur to post mid-single digit volume growth better than peers. We believe higher demand, market share gains, good acceptance to innovations, and better traction for small packs would help the category to maintain double-digit growth in the medium term.

Commodity correction to support margins in H2

Raw-material inflation for Dabur stood at 12% in FY2022 and was expected to further increase by 7-8%, impacting the EBIDTA margin in Q1FY2023. The company has indicated 200 bps EBIDTA margin decline in Q1FY2023. Commodity prices (including vegetable oils, crude oil, and sugar) have witnessed significant correction in the past 15-20 days. This will help margin pressure to cool-off in the second half of the year. Thus, overall inflation should be around high single-to low double-digit in FY2023, which will be taken care by price hikes undertaken in recent times. Overall, the company is targeting to maintain OPM inline with the last fiscal at around 20.0% through cost efficiencies, better product mix, and stringent ad spends.

Sharekhan Maintain Buy with Target Price of Rs. 645 apiece

The diversified portfolio of brands, sustained market share gains in key categories, good traction to new launches, and distribution expansion would help Dabur achieve double-digit revenue and earnings growth in the medium term (with stable OPM). "We expect Dabur's revenue and PAT to grow by 15% and 19% over FY2022-FY2024, respectively. The stock has underperformed compared to broader indices and is currently trading at 45x/37x its FY2023E/FY2024E earnings, which is at a stark discount to its last five years' average multiple of 47x. We maintain our Buy recommendation on the stock with a revised price target (PT) of Rs. 645," Sharekhan said.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.