While keenly waiting for demand recovery as GST pressures abate, Dabur is aggressively looking to ride the ayurveda wave. Tie-up with Amazon will expand its global footprint while Ask Dabur will help fight competition and expand ayurveda space back home. Both hold potential for Dabur in long run. In short term, it maintains FY18 domestic volume growth guidance of 5-10 % with aggressive target for H2FY18.
In Q2FY18, consolidated topline to grow in low single digit with flat EBITDA. Maintain Hold with revised TP of `325 on 35x forward P/E. We estimate consolidated sales and EPS CAGR of 8% and 9% over FY17-19E with OPM stable at 19.8%. Valuation at 36x FY19 P/E looks fair.
Dabur India’s domestic volume is expected to grow in high single digit with flat price growth. While wholesale channel remained stressed, the company managed the pressure through higher reliance on direct servicing and cash-and-carry partners. Like other domestic FMCG companies, the company has also seen better growth in the rural market. International business is expected to remain under stress, with expected recovery likely only from Q4FY18. Price hike deferment can pressure gross margin, which will compress consolidated EBITDA margin by 55 bps.
With host of ayurvedic medicinal offerings, Dabur India is gearing up to tap the herbal wave around the globe. It has tied up with Amazon to create ayurveda e-market place to expand its global presence. It is looking to double online sales contribution in the next two to three years.
Dabur will initially offer around 30 products such as Vatika hair oil, Meswak toothpaste, Red toothpaste, Chyawanprash etc. through Amazon to consumers in USA, Canada, and Mexico. Over the next six to eight months, Dabur can add another 80 products. These offerings will soon be expanded to other countries too. Dabur will also offer exclusive products to Amazon’s global customers.