Dabur India shares down 5% in 2023. What Nuvama says on Q3, stock price target

Shares of Dabur India Ltd are down 5.47 per cent in 2023 so far, underperforming the BSE FMCG index's 22.6 per cent return widely, thanks to concerns over persisting rural demand and reports of recent lawsuits against its US subsidiaries. Nuvama Institutional Equities has, however, maintained its 'Buy' rating on the stock with a price target of Rs 680, valuing the scrip at 50 times Q1FY26 earnings per share.

In its latest note, Nuvama said volumes for most staples companies should stay muted in December quarter, especially in rural India, and that it expects low single-digit volume growth for Dabur India in Q3FY24. This is against a 3 per cent YoY volume growth in the September quarter.

With delayed winters, Nuvama expects Chyawanprash sales to be muted. Beverages portfolio, it said, is likely to see recovery against a 10 per cent YoY dip in Q2. Home care and OTC should do well with Skincare seeing reasonable growth, the brokerage said.

"The beverages portfolio finally bottomed out and started witnessing growth from October. In Q2FY24, the beverages portfolio declined 10 per cent YoY (PepsiCo and Coca-Cola, on the other hand, clocked double-digit growth), due to uneven rains and a shift in the festive season. However, in Q3FY24, we estimate a recovery," Nuvama said.

Nuvama said gross margins for the September quarter improved 295 basis points and that it expects the trend to remain strong, as raw material prices soften, with honey prices at a three-year low. A&P spends should stay strong. International business is likely to grow faster than domestic, the brokerage said.

"Dabur India is seeing market share gains continuing across 90 per cent of its portfolio. It shall see strong gross margin expansion. However, rural slowdown continues to be a concern for the entire sector. Maintain ‘BUY’ with a target of Rs 680 (50x Q1FY26E EPS)," it said.

  Meanwhile, Dabur's two foreign subsidiaries, Dabur International and Dermoviva Skin Essentials, have been removed as defendants in lawsuits filed in US courts. Only Namaste Laboratories LLC would continue to face charges.

"Dabur India has product liability insurance in place if any legal liability arises due to the legal issue. However, the company believes the case has no merits. Namaste US legal issue shall continue with legal costs likely continuing for around two years since it is a multi-district legal issue," Nuvama said.

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