Dabur India shares rally 28% since March; rural demand, ayurvedic products make ‘high conviction buy’ pick

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Updated: July 17, 2020 11:58 AM

During the ongoing pandemic, Ayurvedic products are witnessing strong traction, which is positive for Dabur as the segment is more profitable than the rest of the portfolio

Dabur IndiaDabur offers the best visibility amongst peers beyond 1QFY21 due to its rural dependence

FMCG major Dabur India is a high conviction stock of the research and brokerage firm Motilal Oswal Financial Services. According to the brokerage firm, Dabur India appears one of the most exciting investment opportunities in the Indian consumption space over the next 4-5 years. Dabur India share price has rallied 28.5 per cent from its 52-week low of Rs 385.05 apiece touched on March 23 this year. In today’s trade, Dabur India stock price has gained 1.5 per cent, taking the total market capitalisation of the company to Rs 86,568.46 crore. “Dabur offers the best visibility amongst peers beyond 1QFY21 due to its rural dependence (highest among domestic companies, barring Emami) and a large part of its portfolio being non-discretionary in nature,” Motilal Oswal Financial Services said in a report.

The brokerage firm has maintained a ‘buy’ rating to the stock. It will take 10 per cent jump for Dabur India to reach the price target of Rs 540 apiece pegged by the brokerage firm. Around 11.30 AM, Dabur India shares were trading 0.36 per cent higher at Rs 489.30 apiece, as compared to a 0.66 per cent rise in the benchmark S&P BSE Sensex.

Dabur India also aims to drive cost savings by focusing on rationalizing (a) employee cost by higher automation of production, (b) conversion and transportation cost, (c) procurement costs through expanding vendor base and some value engineering, and (d) packaging by making it lighter yet sturdy, the brokerage firm said. “During the ongoing pandemic, Ayurvedic products are witnessing strong traction, which is positive for Dabur as the segment is more profitable than the rest of the portfolio,” Motilal Oswal said. “In its home and personal care portfolio where penetration is very high, the aim is to take market share from peers and plug gaps in terms of portfolio/ geography,” it added.

According to Quantum Securities, there has been reverse migration to cities after an exodus to the villages, seen in the early part of the quarter. “Yet, a large part of the migrant labour remains in the villages. MNREGA has kicked in, but rural demand was anyway impacted even before the COVID-19 pandemic,” it added. It said that the FMCG sector had corrected and then recovered sharply. ” Dabur has done well with its portfolio, particularly oral care and hair care,” it added.

Dabur India witnessed that rural demand has been growing ahead of urban demand. Earlier this week, Dabur’s promoters have hiked their stake in Eveready Industries by 8.48 per cent by acquiring 61.67 lakh shares in the open market. The company informed that after the transaction, the shareholding of the five entities –M B Finmart, Puran Associates, V I C Enterprises, Chowdry Associates and Gyan Enterprises– in Eveready Industries increased from 11.35 per cent to 19.84 per cent.

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