Dabur remains among our top picks in staples. And, our recent interaction with the top management reaffirms our confidence in the company’s ability to sustain double-digit volume growth in FY19.
Key strategic initiatives that bolster our optimism are: (i) focus on innovation & improving market leadership; (ii) aggressive ad spends; and (iii) enhancing direct distribution (Project Buniyaad).
In our view, Dabur is best placed to regain share from some of the herbal companies that are facing a slowdown. This coupled with improving rural economy bodes well for Dabur. Hence, we raise our target multiple to 50x (45x earlier) and arrive at revised TP of Rs 560 (Rs 505 earlier). Maintain ‘buy’.
Dabur’s 21% volume growth in Q1FY19 was a pleasant surprise and management has mentioned that this momentum has sustained in July as well.
Dabur is confident of clocking double-digit volume spurt in the balance three quarters of FY19 (despite less favourable base). Dabur perceives election sops as an added fillip to growth vector. Moreover, the company is working on increasing e-commerce presence and is also closing a few M&A deals which, we believe, can be an added kicker.
Apart from core brands, management has sharpened focus on accelerating growth of scalable brands like Dabur Lal Tail, Pudin Hara, Honitus, etc.,— each with a potential to become a Rs 1-billion-plus brand. Dabur’s strategy of gaining overall market leadership entails strengthening ayurvedic offerings, regionalisation, offering products for Gen Y&Z, premiumisation and deepening distribution.
We expect volume recovery to sustain aided by expansion of herbal market, premiumisation, new launches and uptick in rural spending. We assign 50x (10% discount to HUL’s) and ascribe TP of Rs 560. At CMP, the stock is trading at 43x FY20E EPS.