Dabur to gain from new launches, changes in distribution strategy

Anubhav Sahu

Moneycontrol Research

Dabur’s quarterly results highlighted volume-led growth aided by market share expansion in key categories – oral care and beverages. Improving rural demand (11 percent YoY vs 10 percent in urban areas), new launches along with a nimble distribution and product positioning strategy are expected to help the company grow in the coming quarters.

Quarterly update

Table: India business

Dabur’s reported consolidated revenue declined by 1.1 percent YoY but the underlying constant currency growth (adjusted for GST accounting) was up 8 percent. Organic growth of the Indian business (68.1 percent of Q2 FY18 sales) was ~10 percent YoY mainly aided by 7.2 percent volume growth. International business grew by 3.9 percent on a constant currency basis. EBITDA margins improved on account of lower ad spends (mainly on the international front) and employee cost rationalization that was partly offset by higher raw material costs.

Oral care – Improving market share

Company’s oral care segment (19 percent of Q2 FY18 domestic sales) witnessed a significant improvement of 22.8 percent aided by e-commerce campaign and market share gain. This segment continues to spin a surprise as Dabur reportedly has been able to increase market share while other strong players – Colgate and HUL have continued to witness decline with the continued traction of Pantajali’s Dant Kanti.

That said, the company is currently working towards a new product launch in the herbal category. Recent launch of Dabur Red gel was received well and contributed 2-3 percent growth in the toothpaste category.

Hair care – Upping the competitive intensity

Hair oil category (20 percent of Q2 FY18 domestic sales) growth was subdued at 2.3 percent YoY. Here, the company’s market share was marginally lower in value terms. With respect to the low cost portfolio in hair oil, it has positioned itself aggressively on the pricing front, which means more disruption is in the offing particularly in the coconut and almond hair oil sub-segments.

Other segments

Other segments like beverages, home care (Odomos and Odonil) and skin care (Gulabari) posted double-digit growth in the quarter. In the health care, honey segment grew by 8.6 percent reversing the trend in previous quarters. It expects a demand pick-up in honey to continue in H2 2018. Regarding Patanjali, it believes that the honey segment itself has expanded because of Patanjali’s entry.

Improved growth visibility

Overall, Dabur is expected to benefit from the portfolio calibration done in terms of new launches, product pricing strategy, changes in distribution strategy (eg: tie up with Amazon). Dabur’s two-pronged strategy wherein on one hand they are focusing on premiumization through innovation and on the other hand they are addressing competitive intensity for select categories though distribution and pricing, appears to be value accretive.

The stock is currently trading at 34x 2019e earnings and given the improved growth visibility, the stock provides an investment opportunity in the consumption space.

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