Shares of Dabur India Ltd. declined by nearly 5% after UBS downgraded the stock from a “buy” rating to “neutral.” Despite the downgrade, the brokerage raised its price target to Rs 700, reflecting confidence in potential upside.
Valuation Concerns and Rural Demand Recovery
UBS flagged rising downside risks, noting that rural demand recovery has already been factored into the stock price. The valuation of Dabur shares is nearing two-standard deviations above its five-year average. Dabur is currently trading at a price-to-earnings (P/E) multiple of 60.3 times, compared to its five-year average of 54 times.
Sales Risks for Real Juices and Increased Competition in Coconut Oil
UBS expressed concern over Dabur’s Real juices, which account for 9-10% of consolidated sales in FY24. The firm believes a price war in the carbonated soft drinks market could impact sales.
Additionally, competition in the coconut oil segment, driven by Bajaj Consumer’s entry, adds further pressure. Coconut oil represented 2-3% of Dabur’s consolidated sales last year.
Strong Festive Demand Mitigates Risks
Despite these challenges, UBS believes other segments of Dabur’s business are performing well. The risks may be mitigated by strong demand in the upcoming festive season.
EPS Estimates Cut by 11% for FY25
UBS has lowered Dabur India’s Earnings Per Share (EPS) estimates for FY25 by 11%, citing slower beverage sales growth and limited margin expansion. Nonetheless, the revised price target indicates a potential upside of 7% from Tuesday’s closing price.
Stocks Performance in Last One Year
In terms of stock performance, Dabur shares have demonstrated positive returns across multiple time frames. Over the past month, the stock has given a commendable 5.68% return, showcasing its stability and growth potential. The last six months have seen even more impressive results, with a substantial increase of 20.40%, indicating a strong upward trend.
Year-to-date, Dabur shares have surged by 12.54%, reinforcing the stock’s positive momentum in the current fiscal year. Looking at the broader picture, the stock has delivered an impressive return of over 13.12% in the last twelve months, emphasizing its sustained growth and attractiveness to investors.
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