We cut our FY17/ FY18/ FY19F EPS estimates by 7.8/ 9.3%/ 10.1%, as we lower our revenue growth estimates for Dabur by 7.3-10.5%, and we now downgrade the stock to Neutral.
We cut our FY17/ FY18/ FY19F EPS estimates by 7.8/ 9.3%/ 10.1%, as we lower our revenue growth estimates for Dabur by 7.3-10.5%, and we now downgrade the stock to Neutral. We now build in marginal 2% revenue growth for FY17F as the company grapples with low consumption, and its inability to increase prices currently. Our revenue growth assumption increases to 12% for FY18F. We have not changed our EBITDA margin estimates substantially, as we believe the company can control its A&P expenditure as consumers struggle with the current liquidity crunch.
The company continues to face the following: threat of lower priced Patanjali in the honey space resulting in weaker growth over the past five quarters: stabilising growth in the oral care division, with the company unable to increase prices; and no new product launches to spur consumption. The input price benefit seems to be ending.
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The stock has corrected slightly in the past 1M – 5.9% vs. the sector average of 8.1%. It currently trades at 32.4x FY18F EPS of R8.64. At these valuations, we prefer Hindustan Unilever (HUVR IN, Buy) and Colgate Palmolive (CLGT IN) given the staples nature of their portfolios, distribution reach and brand equity.
We downgrade Dabur to Neutral with a lower TP of R307, implying potential upside of 9.8% from current levels. Our target multiple remains 34x. Risks to our TP include a faster than expected pick up in consumption, or declining input prices.