Results Review for Dabur, Eicher Motors, HPCL, Clean Science and Technology

  • Stock Market Analysis

Dabur (NS: DABU )

Dabur delivered an operationally in-line Q1FY24 print with consolidated revenue/EBITDA each growing by 11% YoY while volume grew by 3% (c.6% excl. beverages). The domestic business grew by 8% while the international business posted a 10% growth (21% cc growth). Growth was led by double-digit growth in healthcare (+10%) and HPC (+11%).

Unseasonal rains impacted the beverage business (down 2%) while foods grew 35%. Dabur is now the #2 player in oral care as it continues to outgrow the category (2-3%) by registering 8% volume growth, thereby leading to market share gains. With the softening RM basket (except for foods), GM expanded both YoY/QoQ to 46.6%.

However, the 30% YoY increase in A&P spending more than offset GM gains leading to flat EBITDAM at 19.3%. With moderating inflation aiding recovery in rural demand (+4%) and the gap vs urban reducing significantly, Dabur remains upbeat on mid-high single volume growth with EBITDAM at the upper end of guidance (19-19.5%). We maintain our EPS estimates and value the stock at 42x P/E on Jun-25EPS to derive a target price of INR 570. Maintain ADD.

Eicher Motors (NS: EICH )

Eicher’s Q1 PAT was ahead of estimates due to higher-than-expected other income at RE and strong performance at VECV even as standalone EBITDA was in line with estimates. Earnings beat at VECV was driven by better-than-expected revenue growth even as margins were in line. Competition has significantly heightened in the 250-500cc segment post the recent launches by both Harley Davidson (in partnership with Hero MotoCorp (NS: HROM )) and Triumph (in partnership with Bajaj Auto (NS: BAJA )) at extremely competitive and similar price points to RE.

While their ambitions are likely to be much higher, even if both these peers together are able to ramp up to 10% of RE volumes over 6-9 months, it would cap RE’s future growth potential. Given the competitive aggression, we believe that RE would be forced to reconsider its pricing/brand strategy very quickly, which will in turn drive margin pressure. Even exports momentum is now derailed given the geopolitical challenges at least in the near term. Reiterate REDUCE with a revised price target of INR 3,207 (from INR 3,086) as we roll forward to June 25 earnings.

Hindustan Petroleum Corporation Limited (NS: HPCL )

Our ADD rating on Hindustan Petroleum Corporation (HPCL) with a price target of INR 300 is premised on robust refining and marketing margins, offset by elevated debt, owing to higher capex plans. Q1FY24 EBITDA came in at INR 97bn, above our estimate, owing to higher-than-expected gross marketing margins and crude throughput, partially offset by lower-than-expected gross refining margins (GRMs).

Clean Science and Technology: We maintain SELL on Clean Science and Technology (CSTL) with a price target of INR 1,165 (WACC 11%, terminal growth 6%). The stock is currently trading at 35x FY25E EPS. We believe EBITDA and PAT will grow by 15/17% over FY23-25, owing to (1) expansion in capacities of existing products and (2) foray into acetone-based products (Hindered Amine Light Stabilisers—HALS—series).

However, the RoE is expected to decline from 33.2% in FY23 to 27.4% in FY25, owing to a reduction in margin and asset turnover. Q1 EBITDA/APAT were 34/30% below our estimates, owing to a 22% fall in revenue, higher-than-expected raw material cost, offset by lower-than-expected other expenses and higher-than-expected other income.

Dabur

Rural recovery in sight; volumes set to pick up

Dabur delivered an operationally in-line Q1FY24 print with consolidated revenue/EBITDA each growing by 11% YoY while volume grew by 3% (c.6% excl. beverages). The domestic business grew by 8% while the international business posted a 10% growth (21% cc growth). Growth was led by double-digit growth in healthcare (+10%) and HPC (+11%).

Unseasonal rains impacted the beverage business (down 2%) while foods grew 35%. Dabur is now the #2 player in oral care as it continues to outgrow the category (2-3%) by registering 8% volume growth, thereby leading to market share gains. With the softening RM basket (except for foods), GM expanded both YoY/QoQ to 46.6%.

However, the 30% YoY increase in A&P spending more than offset GM gains leading to flat EBITDAM at 19.3%. With moderating inflation aiding recovery in rural demand (+4%) and the gap vs urban reducing significantly, Dabur remains upbeat on mid-high single volume growth with EBITDAM at the upper end of guidance (19-19.5%). We maintain our EPS estimates and value the stock at 42x P/E on Jun-25EPS to derive a target price of INR 570. Maintain ADD.

Consolidated revenue up 11% YoY: Revenue grew by 11% YoY (+8% in 504Q1FY23 and +6% in Q4FY23), led by double-digit growth in HPC and Healthcare. The international business saw a 21% CC growth (+10% in INR due to currency impact). Rural growth has bounced back after three quarters (+4%); with the gap with urban reducing significantly. Dabur’s flagship oral care business grew 13%; skincare/hair care grew by 4/10%. While the food business grew 35%, beverages were impacted by unseasonal rains. Dabur gained market share across 90% of its portfolio. We model a 10% revenue CAGR in FY23-26E.

Healthy 11% EBITDA growth: GM expanded by 75/80bps YoY/QoQ to 46.6% aided by the softening RM basket. Employee/other expenses grew by 10/9% YoY. With Dabur stepping up A&P spending which grew by 30% YoY (6.5% of sales), the EBITDA margin was flat YoY (+400bps QoQ) at 19.3% (in line with HSIE estimate). EBITDA grew by 11% YoY. We model 19.5-20.5% EBITDA margin FY24-FY26.

Con call takeaways: (1) FMCG volumes in rural/urban grew 4/10%. Dabur grew ahead of the market. (2) Although rural continues to lag behind urban, the gap has reduced significantly. (3) In oral care, against category growth of 2-3%, Dabur registered an 8% growth led by the flagship Dabur Red brand, which gained a 50bps market share. Dabur is now the #2 player.

(4) Distribution changes undertaken in international markets last year have started yielding results in Q1. Full impact to be visible from next quarter. (5) Although RM basket inflation has moderated to low single digits, food inflation is now inching up. (6) In terms of channels, MT grew by 18%; some teething issues in e-com exist but it remains on track to contribute 9% of revenue in FY24. (7) NPD contribution to sales stands at 3%.

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  • NIRAV JARIWALA @NIRAV JARIWALA
    bajaj auto 50 share buy on 5080 sl 4999 intraday
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