Dabur India: On the right path

18 Sep 2023 , 11:00 AM

Recommendation: Buy; Target Price: Rs 640

 

During its analyst meet on 15th Sept, Dabur outlined its future plans that included leveraging on its strengths in Naturals and Ayurveda (making more tangible product claims). Besides launching products in adjacencies to increase its TAM, the company aims to premiumise portfolio and align it more with future trends. Dabur has also embarked on a digital drive and will be driven more by systems and processes, in order to manage complexity. On the other hand, expanding distribution reach across channels is also in focus. Margin expansion will be modest as the company invests in brand building. Maintain BUY with TP Rs640. 

Well-placed to capture the Naturals opportunity: Macro trends are in favour of Dabur as the preference for Naturals is on a rise, with 69.1% of urban households preferring Natural products (47.9% in 2019). The company has the right Naturals portfolio rooted in Ayurveda; reaching consumers and proving the efficacy of products through scientific claims. Allopathic doctors are also being taken on board for the advocacy for its therapeutics range, which consists of ‘Dabur Baby’ and branded ethicals products. 

Reviving the portfolio with innovations: Dabur is increasing the relevance of its portfolio through launching innovative products in its power brands such as Dabur Chyawanprash Sugarfree, Dabur Kesarprash, Khajurprash, etc., which also help in premiumisation. Contribution from the premium products stood at ~8-9% of the overall sales. It is scaling the existing categories by entering into new adjacencies such as ‘Cool King’ in oils, ‘Bae Fresh Gel’ in toothpaste & ‘Mustard Oil’ in Foods. It has entered into the Rs11.4bn Baby Care market with its franchisee ‘Dabur Baby’. As a result, the NPD contribution has gone up from 1.4% in FY19 to 4% in FY23. 

Profitability remains at the core: Dabur has changed its operating model to more agile and accountable business units. All regional business heads and channel heads have been given separate P&L responsibilities. Analysts of IIFL Securities cut their EPS estimates by 2% for FY25/FY26 to factor in the slower-than-expected margin recovery, as the company intends to increase its brand investments to 8-10% range in medium term (vs 5.6% in FY23). Analysts of IIFL Securities expect the top-line to grow at low double digits with margins reaching 20% by FY25. Maintain BUY with a TP of Rs640.