ICICI Securities has given an add rating to Dabur India with a target price of Rs 480 based on 50 times P/E multiple Mar-22E .
The brokerage continues to see three pillars to the Dabur story: (1) strong innovation pipeline (new products at ~3 per cent of revenues); (2) likely cost reduction measures yielding ~150 bps of operating margins (which may be redeployed for growth); (3) a culture change with a bias for action under Mohit Malhotra, CEO. That said, it continues to see headwinds of second-order impact of likely lower economy growth, downtrading, wholesale channel challenges etc. The brokerage expects headwinds in international (25 per cent revenue contribution) due to severe economic slowdown in crude-linked economies (Middle East).
Investment Rationale
According to the brokerage, Dabur’s cash generation took a hit given the weak performance (FY20 revenue / EBITDA grew 2 per cent / 3 per cent). Operating cash flow (OCF) grew 8 per cent to Rs 16 billion but free cash flow (FCF) declined 6 per cent to Rs 12 billion. Working capital remained stable at 30 days (March 2020).
Management has maintained its guidance of mid-to-high single-digit volume growth in medium term after the impact of Covid-19 is over.
The brokerage has cut its earnings estimates by 7-8 per cent; modelling revenue / EBITDA / PAT CAGR of 5/ 7 / 5 ( per cent) over FY20-22E.
Key downside risk is sustained weakness in consumption demand.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1865.36 crore, down -20.72 per cent from last quarter sales of Rs 2352.97 crore and down -12.35 per cent from last year's same quarter sales of Rs 2128.19 crore. The company reported net profit after tax of Rs 281.99 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 67.88 per cent stake in the company as of March 31, 2020, while FIIs held 17.43 per cent, DIIs 7.7 per cent and public and others 7.61 per cent.