‘Buy’ Dabur shares, volume momentum likely to be sustained

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Published: March 26, 2019 12:42:59 AM

Company is well placed to regain share from some herbal companies; among top picks in consumer staples; ‘Buy’ maintained

Dabur is well placed to regain share from some of the herbal companies facing slowdown blues.

Dabur remains amongst our top picks in staples. Our conviction in its long term prospects remain strong post our recent interaction with Mohit Malhotra, company’s CEO Designate. Key takeaways: (i) confident of mid-to high single-digit volume growth in FY20;
(ii) planning to push the launch pedal; (iii) well placed to cash in on consumers’ rising preference for herbal & natural products bolstered by its vibrant portfolio & execution capability; and (iv) the company is sharpening focus on enhancing its direct distribution
(Project Buniyaad). In our view, Dabur is well placed to regain share from some of the herbal companies facing slowdown blues. Maintain Buy.

Volume momentum to sustain
With an average 13.8% growth over the first three quarters of FY19, Dabur’s volumes have outperformed most peers. It is pegging FY20 volume growth at mid to high single-digit. The government’s rural sops bode well for volumes as rural India contributes 45% to the company’s revenue. Moreover, Dabur is working on enhancing its e-commerce presence, which, in our view, will be an added kicker. Dabur’s strategy for existing products battling competitive onslaught as well as for new launches in most cases is to price them aggressively (already market leader in 65-70% of the portfolio) to gain market share and post building the franchise, raise prices.

Innovation supported by strong execution aids market share gains
Apart from core brands, management has sharpened focus on accelerating growth of brands like Dabur Lal Tail, Pudin Hara, Honitus, etc.— each with a potential to become an Rs 1 bn-plus brand (Rs 0.1 bn currently). Dabur’s strategy of gaining overall market leadership entails strengthening ayurvedic offerings, regionalisation, targeting Gen Y & Z, premiumisation and deepening distribution.

Outlook and valuation: Going strong; maintain ‘BUY’
We expect volume recovery to sustain over longer term. Dabur will benefit from expansion of the herbal market, premiumisation, innovative launches. We continue to assign 10% discount to Hindustan Unilever’s (HUL’s) target multiple to arrive at target price of `535. At CMP, the stock is trading at 41.4x FY20e EPS. We maintain ‘BUY/S’ and retain Dabur among our top picks.

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