MOSL: DABUR (Neutral)-Below estimate on most fronts, near-term outlook uncertain too

DABUR: Below estimate on most fronts, near-term outlook uncertain too

(DABUR IN, Mkt Cap USD9.2b, CMP INR385, TP INR410, 6% Upside, Neutral)

• Dabur’s 2QFY19 consol. reported sales grew 8.5% YoY to INR21.3b (our estimate: INR22.3b). EBITDA increased 7.4% YoY to INR4.5b (our estimate: INR4.7b). Adj. PAT rose 4.6% YoY to INR3.8b (our estimate: INR3.9b).
• Domestic FMCG business sales grew 8.6% YoY, led by underlying volume growth of 8.1% YoY (our estimate: 7%) – this business contributes 69.1% of overall revenue. International sales grew 8.9% YoY (+7% in CC terms).
• 1HFY19 performance: Sales/EBITDA/adj. PAT grew 12.2%/14.8%/10.5% YoY. EBITDA margin expanded 50bp YoY to 19.9%. For 2HFY19, we expect sales growth of 7.5% YoY and EBITDA/adj. PAT to decline 1%/1.4% YoY.
• Concall highlights: (1) Demand sentiment is slightly deteriorating, especially in rural. (2) Maintained double-digit volume growth target for FY19.
• Valuation view: Changes to the model (on account of lower-than-expected performance and muted management commentary compared to their recent guidance) prompt us to cut FY19/20E EPS by 4.3%/6%. We note that management has switched back to calling out double-digit volume growth in the domestic business for the full year and not the remainder of the year. Our upgrade to Buy post 2QFY18 results played out well with a 30% increase in the stock price. While the stock has fallen by over 10% since then, valuations of 40x FY20E are not attractive enough to switch back to Buy, particularly given the uncertainty over medium-term volume growth and worries emerging on the cost front. We maintain Neutral with a TP of INR410 (40x Sep’20E EPS, in line with three-year average multiple).