Dabur India gains 4% in subdued market post June quarter business update

Recovery in rural markets should support Dabur's portfolio, as it is heavily skewed toward rural areas, said brokerages.

Shares of Dabur India were up 4 per cent at Rs 633.05 on the BSE in Monday’s intra-day trade on heavy volumes in an otherwise subdued market as the management said demand trends improved quarter-on-quarter (QoQ) and rural growth picked up.

The management expects improvement in consumption going forward, given the forecast of a normal monsoon and continued focus by the government on macro-economic growth.

The stock of fast moving consumer goods company (FMCG) had hit a 52-week high of 634 on June 5, 2024. It had touched a record high of Rs 658.75 on September 24, 2021. At 11:35 am; Dabur was trading 3.6 per cent higher at Rs 628, as compared to 0.1 per cent decline in the BSE Sensex. The average trading volumes at the counter jumped over three-fold. A combined nearly 5 million shares changed hands on the NSE and BSE.

The personal care company on Friday, after market hours, announced that its consolidated revenue is expected to register mid-to-high single digit growth during April-June quarter (Q1FY25). India business is expected to record mid-single digit volume growth during the quarter.

Dabur said that the quarter saw sequential improvement in demand trends with rural growth picking up. With forecast of a normal monsoon and continued focus by the government on macro-economic growth, the firm expects the improvement to accelerate in the coming months.

Commodity prices were stable during the quarter. Gross margins are likely to witness some expansion on account of roll-over price increases and cost-saving initiatives. The business continued to invest strongly behind the brands with A&P spends growing ahead of revenue. Consequently, the operating profit is expected to grow marginally ahead of revenue, Dabur said in its Q1FY24 business update.

According to analysts at Motilal Oswal Financial Services (MOFSL), recovery in rural markets should support Dabur’s portfolio, as it is heavily skewed toward rural areas. In the domestic business, the brokerage firm expects healthcare, oral care, and food business to grow faster than others. The distribution drive will further contribute to rural growth. EBITDA margin has remained in the range of 19-20 per cent for the past several years. The margin is expected to improve in the coming years due to a better mix of products (such as higher healthcare offerings) and increased pricing in high market-share brands, MOFSL said.

“Dabur remains one of our preferred picks in the sector, given its diversified portfolio and better execution. Its thrust on rural remains firm, with the company continuing to report better growth in distribution expansion,” analysts at Emkay Global Financial Services said.

Stock valuations at 42x P/E for FY26E remain attractive (vs 47x the last 5Y avg. fwd. P/E). We have a BUY rating on Dabur, with Jun-25E target price of Rs 700 per share, the brokerage firm said in stock update.