Cut rating on Dabur to ‘hold’ from ‘buy’ following outperformance relative to peers

Domestic volume growth of c.17% was the key highlight of Dabur’s Q2FY21. While healthcare continued its strong run, HPC also picked up. We believe the CEO’s strategy is working well, as Dabur is becoming agile and the team is taking risks, as is evident in a slew of launches. The CEO intends to raise ad-spend in the medium term, which also highlights the growth mindset. We cut our rating on Dabur to ‘hold’ from ‘buy’ following its outperformance relative to peers.

Notable revenue growth. After declining for two consecutive quarters, Dabur’s Q2 revenue grew 14% YoY, a material beat of our and consensus estimates. Delving deeper, the India business grew by a notable 20% (volumes up c.17%), the highest in nine quarters. International business also recovered, growing 5.5% YoY (c/c: 3.5%).

Segmental performance. The healthcare segment continued to outperform, with revenue up 49% YoY as consumers remained focused on wellness and immunity. HPC, too, made a strong comeback, growing 9% YoY, with oral care an emerging bright spot. Foods remained weak, down 4% YoY.

Healthcare accelerates. Healthcare gathered further momentum, with growth accelerating to 49% from 29% in Q1. This was marked by a doubling of Chyawanprash revenues, double-digit growth in honey, and 56% growth in OTC. Growth was driven by higher household penetration, as Covid concerns drove immunity-boosting supplements.

HPC recovers. HPC recovered after two quarters of double-digit decline, led by strong growth in oral care (+24% YoY) and skincare & salon (+38% YoY). Sanitiser sales, however, declined to Rs120 million vs Rs800 million in Q1. Hair oil fell 2.5%, partly because of pressure in the CSD channel (flat ex-CSD) with consumers down trading from premium brands. Home care declined 10%, with subdued performance in Odonil and Odomos.

Foods weak, but better QoQ. The foods business fell 4% YoY, better than 35% decline in Q1. Demand in the institutional channel remain weak (ex-HORECA, revenue up 8.5%), even as in-home consumption continues to do better.