Shares of Dabur India Ltd fell 5% in the last two trading days on the NSE amid widespread weakness in the market and weak results for the fourth quarter (Q4FY22) of FY 2022.
The company’s Q4 consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) fell short of analysts’ expectations. Higher costs mean year-on-year (y-o-y) growth in EBITDA is just 2.5% 453 crore with margin contracting by 92 basis points (bps) to 18%. One basis point is 0.01%.
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This is when revenue grew at a comparatively faster pace of 7.8% to about . It is done 2,518 crores.
Dabur’s domestic food and beverage business saw strong growth in the fourth quarter while healthcare was resilient; And there was a lack of home and personal care. Overall, analysts estimate India’s fast-moving consumer goods (FMCG) business volume to grow by around 2%. Domestic revenue growth was 8%. Based on a three-year CAGR (compound annual growth rate), growth has decelerated sequentially.
“We note that Dabur’s three-year revenue CAGR in the domestic business declined from 5% in Q4FY22 to 10% in Q4FY22,” analysts at Kotak Institutional Equities said in a report on 6 May. Recall that Q4FY20 operations were affected by the outbreak of COVID and hence the CAGR of three years enables a better comparison.
One factor that weighed on Dabur’s revenue growth in the fourth quarter is the slowdown in the rural market due to liquidity crunch and lower consumer spending. The company’s management has closed the business of hair oil and shampoo.
Thus, the start of FY23 has been sluggish. Dabur expects to bear the brunt of the sluggish rural slowdown for the first half of the financial year 2023 (H1FY23). At the same time, margin concerns remain, though there may be some relief on this front as Dabur is considered to be better positioned than its peers. Kotak analysts pointed out that Dabur faces lower gross margin pressure than most peers due to its portfolio mix, but higher demand pressure due to higher rural prominence (45-48% of total sales).
Analysts at HDFC Securities do not expect a significant impact on EBITDA margins in FY13 (higher base of other expenses and cut in A&P to support). In FY22, Dabur’s Ebitda margin fell 25bps to 20.7% in FY22. The company expects demand conditions to improve in the second half of FY23 on the back of a good monsoon, which could lead to better rural demand.
Meanwhile, Dabur shares trade at around 44 times estimated earnings for FY13, according to Bloomberg data. Concerns over demand and margin pressure may limit the scope for expansion in the stock’s valuation in the near future.
Shares of Dabur have lost 6% in the past one year, underperforming sectoral index Nifty FMCG, which has gained 9.5%.