Dabur India's Q2FY20 results (Outperformer) - Inline performance; Upbeat outlook…

Q2FY20 result highlights

• Consolidated revenues were up 4.1% yoy to Rs22.1bn (est: Rs22.7bn), EBITDA was up 8.6% yoy to Rs4.9bn (est: Rs4.9bn) and PAT was up 6.9% yoy at Rs4.03bn (est: Rs4bn) but adj. for Rs400m exceptional loss, adj. PAT stood at Rs4.4bn on lower than exp tax rate of 11.3%.
• Consolidated gross margins were up 140bp yoy led by benign raw materials and good show in international. Staff cost was up by 3% yoy while A&P increased by 8% yoy. Resultant EBITDA margin improved by 90bps yoy to 22.1% (exp of 21.7%).
• Domestic FMCG volume growth stood at 4.8% yoy (exp: 5% yoy). Growth was led by Health supplements, Digestives and shampoos all growing in double digits. Oral care grew by 4.4% and hair oil was soft at 2.6%. Food segment dragged overall performance as it fell by 5.2%; excluding foods, India volume growth was strong at 7.4% yoy.
• International Business sales increased by 2.7% and was weaker than our exp of 5% yoy.
• Management highlighted that rural continues to grow ahead of Urban for Dabur and most of the growth was led by market-share gains.

Key positives:  Healthy performance in healthcare segment, Positive management commentary on H2 outlook.

Key negatives:  Weak performance in foods & hair oil segment.

Impact on financials: No material change in earnings estimate.

Valuations & view

Dabur’s earnings print was largely inline with our estimates, with healthcare segment continuing to drive overall performance, partially offset by weakness in foods & hair oil segment. Management commentary remains upbeat as it expects growth trajectory to improve in coming quarters from current levels, which is a key positive. We believe Dabur’s strong presence in healthcare segment (which is pretty unique amongst listed plays) as well as its strategy in terms of driving growth through penetration and innovations is playing out well, as indicative from market share gains across categories, thereby helping it to outperform industry growth in a challenging environment. This coupled with recovery in International business should aid overall consolidated earnings for the company. Given a relatively positive commentary, better execution and earnings visibility, we now value Dabur at 48x FY21E, a 10% discount (from 18% discount earlier) to HUL. Maintain Outperformer.