Dabur stock fall may provide entry to long-term investors

Dabur’s performance in the July-September quarter of the current financial year (Q2FY25) was weak but in line with consensus.

Consolidated revenue declined 5 per cent year-on-year (Y-o-Y) due to a temporary adjustment in General Trade (GT) inventory.

Indian revenue declined 7.6 per cent, while international business grew 13 per cent Y-o-Y in constant currency (CC) terms.

Sales declined 5.5 per cent to Rs 3,030 crore.

Indian revenue declined by 7.6 per cent while secondary growth was 2.3 per cent.

Ebitda dropped 16 per cent to Rs 550 crore, adjusted PAT decreased 17 per cent Y-o-Y to Rs 430 crore.

Across segments, home & personal care (HPC) sales dropped 8 per cent Y-o-Y, while Healthcare declined 10 per cent and F&B’s (food and beverage) sales were down 21 per cent Y-o-Y.

But HPC and health care’s secondary sales grew 6 per cent and 4 per cent, respectively, while F&B’s secondary sales slumped 11 per cent Y-o-Y.

Oral care grew 5 per cent in secondary sales, while home care hit a growth of 9 per cent.

Dabur Red Toothpaste continued to gain market share.

The digestives segment increased 9 per cent, and foods posted 21 per cent while beverages declined 12 per cent.

Badshah Masala saw 15 per cent growth.

As a percentage of sales, ad-spending rose 70 basis points (bps) Y-o-Y to 7.5 per cent, other expenses were up 140 bps Y-o-Y to 12.5 per cent, and staff costs grew 135 bps Y-o-Y to 11.2 per cent.

In the international business (all CC), Egypt grew 73 per cent Y-o-Y, Turkey was up 3 per cent Y-o-Y, and West Asia markets posted a growth of 10 per cent Y-o-Y, while the Sub-Saharan Africa business rose 26.1 per cent Y-o-Y.

For the first half (H1) of FY25, revenue remained flat at Rs 6,370 crore, while Ebitda and adjusted PAT declined 4.6 per cent and 5.4 per cent, respectively.

The gross margin improved 100 bps Y-o-Y to 49.3 per cent but Ebitda margin contracted 240 bps Y-o-Y to 18.2 per cent.

Ebitda declined 16 per cent Y-o-Y. In H2FY25, Dabur may show high-single-digit revenue growth.

Dabur also intends to acquire Sesa Care, an ayurvedic hair oil brand, at a valuation of 2.4x of enterprise value (EV)/sales and 19-20x of EV/Ebitda.

EV (including debt) is estimated at Rs 315-325 crore. Sesa holds the number 3 position in the Rs 900 crore category, which fills a “white space”. Sesa’s portfolio includes anti-hair fall oils and shampoos.

In FY24, Sesa had consolidated revenue of Rs 133 crore at an Ebitda margin of 13 per cent with a Bangladesh exposure of 13 per cent of revenue.

Dabur will acquire 51 per cent of Sesa’s cumulative redeemable preference shares (CRPS) from the shareholder, True North, with the merger to complete in 15-18 months.

Dabur management points to moderation in urban demand due to food inflation and poor weather.

Urban consumption may be bottoming out.

Rural demand was higher. Quick commerce channels are expanding swiftly, particularly in urban areas.

Distributor ROI (return on investment) has improved with a reduction in inventory days from 30 days to 21 days.

Dabur aims to reduce it to 19 days by December 2024.

Dabur mitigated inflationary pressures through cost control, operational efficiencies, and judicious price hikes.

Given its broadening distribution reach, better direct penetration, and high rural presence, Dabur is well-positioned to capitalise on rural demand.

However, the operating profit margin has room for expansion only in the medium term.

A new B2B and retailer app aims to streamline orders, leveraging artificial intelligence (AI) to recommend the best product mix per outlet.

Dabur is also mapping underserved regions to optimise distribution and it is strengthe­ning ties with Modern Trade Ltd and e-commerce partners.

According to analysts, the share price erosion in the recent past may create an entry point for patient, value-conscious investors.