Dabur India's Q1FY20 results (Outperformer) - Strong beat; better placed to tackle the slowdown…

Q1FY20 result highlights

• Cons. Rev. was up 9.3% yoy at Rs 22.7bn (est: Rs21.8bn), EBITDA was up 18.5% yoy at Rs4.57bn (est: Rs4.1bn) and reported PAT was up 10.2% yoy at Rs3.6bn (est Rs3.4bn), adjusting for exceptional loss on impairment in value of treasury investment, PAT grew by 14.2% yoy.
• Domestic FMCG grew by 11% yoy with a strong volume growth of 9.6% yoy (est: 5% yoy) on a base of 21% yoy.
• Consolidated gross margins was largely flat (fell 10bp yoy) even as standalone (India) gross margin improved by 85bp yoy due to benign input cost scenario. Cons. staff cost was up 3.2% yoy. Other expenses grew by 5.2% yoy. Advertising spends increased by just 1.6% yoy but including promotions and discounts, cons. spend on A&P was up 18% yoy and standalone was up 15%. Resultant cons. EBITDA margin improved by 150bp yoy to 20.1%, out of this 40bp was contributed by implementation of Ind AS 116 (impact is neutral at PBT level due to corresponding increase in D&A).
• Healthcare posted strong rev. growth of 17.8% yoy. HPC posted growth of 11.7% yoy while Foods sales grew by just 1.5% yoy.
• International Business sales increased by 6.1% yoy with constant currency growth of 7.7% yoy. Turkey grew by 41% in cc terms but currency devaluation impacted in translation. MENA market was flattish with signs of recovery in GCC markets.

Key positives: Superlative domestic volume growth.

Impact on financials: Cut earnings by 2%/2% for FY20E/21E.

Valuations & view

Dabur reported an above consensus quarter led by strong domestic volume growth in an otherwise bleak macro environment led by its unique healthcare portfolio and industry leading execution. As Dabur is amongst the firsts to report in this quarter, it is not possible to make a relative comparison; but we believe that it is very difficult for any other staples company, in our coverage universe, to match this kind of growth. We remain medium-to-long term believers. However, as per Nielsen, the industry has decelerated sharply in the month of June with no signs of revival yet and Dabur also corroborated the same. As a result we marginally cut our sales CAGR est. to 11% (from 12% earlier) over FY19-21E. We value Dabur at 40x FY21E, a 18% discount to HUL’s target multiple and another quarter of volume growth outperformance will make us narrow this gap with the leader; any near-term weakness in the stock is a good buying opportunity, in our view. Maintain Outperformer.