Markets
Dabur’s healthcare portfolio may provide the much-needed boost in FY24
Summary
Performance of the healthcare division in FY23 was relatively weak, with a 7% revenue drop. However, restructuring efforts are projected to yield a high-single to low double-digit growth rate in FY24, under the leadership of former Himalaya Drug Company chief executive, Philipe Haydon.
The Nifty FMCG (fast moving consumer goods) index may have risen 17.5% so far in 2023 and flirting with highs, but shares of Dabur India Ltd have barely managed to keep pace reflecting investor pessimism. The stock has risen a modest 2.3% in stark contrast to the performance of the broader sector.
In the three-month period ended March , Dabur saw its consolidated Ebitda (earnings before interest, tax, depreciation, and amortization) margin slump to a multi-quarter low of 15.3%. Investors will monitor how margins shape up in FY24.
While Dabur’s international business demonstrates strong prospects, it faces significant currency risks. Additional advertisement spend, driven by intensifying competition, could potentially exert further pressure on margins. A possible offset could come from softening input costs, although dramatic margin improvements remain unlikely.
Nomura Financial Advisory and Securities (India) expects Dabur’s Ebitda margin to rise 127 basis points year-on-year to around 20% in FY24.
Despite these challenges, Dabur’s growth outlook for FY24 seems promising. The healthcare segment, a core aspect of Dabur’s portfolio, is anticipated to rebound. The performance of the healthcare division in FY23 was relatively weak, with a 7% revenue drop partly due to a high base impact. Sales contribution from this segment to domestic revenue dropped to nearly 32% from 36% in FY22.
However, restructuring efforts are projected to yield a high-single to low double-digit growth rate in FY24, under the leadership of former Himalaya Drug Company chief executive, Philipe Haydon.
“Most of Dabur’s power brands are in the healthcare space, a category wherein it has the natural right to win given its 138-year heritage," said analysts at Nuvama Research in a report on 27 June. One of Dabur’s strategic initiatives includes transitioning power brands to power platforms by increasing the addressable market across portfolio.
The company’s reliance on rural market revenue remains a significant factor, with muted demand posing considerable challenges. Adding to the woes is the possibility of El Nino developing, which could exacerbate recovery slowdown due to hotter summers and weaker monsoons.
The performance of Dabur’s other domestic businesses, particularly home & personal care and foods & beverages, will require close monitoring. Nuvama analysts have forecast muted Q1FY24 sales in the foods & beverage sector due to unseasonal rainfall. However, anticipating a revival in the healthcare division, they have adjusted their FY25E price-to-earnings multiple from 45x to 50x, resulting in a revised target price of ₹705, up from Rs635. On Wednesday, shares of Dabur closed at ₹574.10 apiece.
