HDFC Securities is bullish on Dabur India has recommended buy rating on the stock with a target price of Rs 470 in its research report dated July 22, 2019.
HDFC Securities' research report on Dabur India
Domestic revenue/vols grew at 11/9.6% YoY (on the strong 24/21% 1QFY19 base). Ex-beverages, domestic volumes grew an impressive ~15%. Still, management commentary remains cautious, with weaker growth in June vs. Apr and May. Liquidity stress was seen in the wholesale channel (~37% in Dabur’s revenue). The strong show was led by (1) Distribution expansion in rural (direct reach at 48k villages vs. 44k), (2) More LUPs at Rs 10 driving rural growth, and (3) A&P focus on power brands (8 brands contribute ~65% of revenues). Rural grew 13% YoY (in contrast with Colgate’s rural growth which trailed urban in 1QFY20). Dabur has gained market share in categories like Glucose (106bps), Shampoo (46bps), Hair Oil (46 bps) and Oral Care by (40 bps). Beverages (+1% YoY) faced stiff competition from milk-based beverages and the extended winter. While market share here remains at peak (56%), recovery in growth is crucial. International (29% of revenues) grew 6% YoY (single digit LTM growth) with persistent softness in the MENA region and currency devaluation. Adjusted EBITDAM (IND AS-116) expanded by 117bps to 19.7% driven by the richer product mix (healthcare), rationalizing A&P and geographic mix (domestic). APAT grew 15% YoY to Rs 3,792mn (est. Rs 3,543mn).
Outlook
Dabur delivered a strong 1QFY20, despite weak macros and a high base. Co’s distribution initiatives and concentrated brand focus have led to ~10% vol. growth, ~2x estimates. This is unprecedented, given Dabur’s track-record in difficult macros. We model near term softness, maintaining estimates despite the 1Q beat. Our TP of Rs 470 is based on 38x Jun-21E EPS. Maintain BUY.
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