Key points from the 4QFY22 results: 4Q earnings miss expectations on earnings. Consolidated sales/ EBITDA/ clean PAT were up 7.7%/ 2.5%/ 0.4% yoy (driven essentially by pricing led revenue growth). Sales were in line but EBITDA/ clean PAT were 7%/4% below consensus estimates.
As high RM cost weighed on margin: Gross margin contracted by 130 bp yoy, though prudent cost management led to a lower decline in EBITDA margin (92bp) to 18.0%, still below consensus expectation (19.2%). Margin outlook remains tough for 1HFY23e.
Healthcare segment growth moderated (7.4% yoy, 4.9% 3yr CAGR) amid waning COVID-19 tailwinds, though honey and Chyawanprash continued to gain market share. Home and Personal care also had a modest quarter (1.9% yoy, 3.1% 3yr CAGR), facing a category decline in Oral Care and Hair Oil amidst weak near-term demand. F&B segment stood out in the quarter (33.5% yoy, 10.6% 3yr CAGR), with strong market share gain in juices & nectar (610bp). Foods segment crossed 1bn in gross sales. International business reported good growth of 10.7% in constant currency terms, though its Turkish business performance was impacted by steep currency devaluation, and the company booked a one-off goodwill impairment to the tune of850m.
Dabur continues to deepen distribution: Dabur has increased its rural coverage to 90,000 villages, up from 60,000 in FY21. E-commerce contributed 6.5% to FY22 sales. Dabur intends to triple it in the next four years.
Why we are Hold: 1) Tailwind for immunity products appears to be waning: While Dabur’s natural ownership of Ayurveda puts it in a good stead, the segment faces a high base, and sustaining growth momentum could be challenging. 2) Near-term demand situation appears weak, with rural market witnessing liquidity constraints and down trading. 3) RM inflation expected to stay stiff at least till 1HFY23e, which could weigh on near-term margins, though Dabur intends to take calibrated price hikes so as not to disrupt demand. 4) Dabur’s current share price implies long-term earnings growth expectations of c12%, which are not excessive, in our view (given the stock has underperformed in the past year), and hence Dabur may still act as a defensive stock in a volatile year, but volume growth uncertainty is likely to keep the stock range-bound. We retain our Hold rating on Dabur with a new TP of 580 (from630), as we revisit our estimates post Q4 results.
