Buy Dabur India - BP Wealth Diwali Picks 2012

Dabur India Ltd (DIL) is a leading consumer goods company in India and has 2 major strategic business units - Consumer Care Business and International Business Division. The company has 17 ultra-modern manufacturing units spread around the globe and its products are marketed in over 60 countries. DIL has been able to achieve wide and deep market penetration on the back of its 50 C&F agents, more than 5000 distributors and over 3.4 million retail outlets all over India.

Ongoing initiatives in rural distribution to drive growth

The company has registered 21% CAGR in its sales and 20% CAGR in its EBITDA over the past 5 years on the back of its extensive domestic product-portfolio and regular forays into newer geographies. We expect the company to achieve robust growth going forward on the back of multiple growth drivers. We believe DIL's international business to grow better than its domestic business and expect the international business to achieve ~19% sales CAGR as against domestic business' ~16% sales CAGR over FY12-FY14 respectively. The company's domestic business has shown tepid growth recently due to muted performance of its rural business. However the company is expected to achieve better sales growth in the coming quarters from its rural business on the back of the roll-out of rural distribution initiatives in ten states by the company.

Recent acquisition have provided a fillip to the total revenues

New acquisitions and regular foray into newer geographies has helped the company's global business to consistently post double-digit growth rate. DIL's recent acquisitions - Hobi Kozmetic and Namaste Group - have been now fully integrated in the business and their portfolios are being marketed across geographies. Dabur is also looking to boost its presence in the domestic personal care market by acquiring niche regional brands. The company is eyeing two popular brands - the Kolkatabased GD pharmaceuticals-controlled Boroline's Eleen and Dey's Medical-owned Keo Karpin as part of this strategy. DIL could also enhance its presence in the over-the-counter category either organiclly or via new acquisitions.

Strong product portfolio

The company has an extensive product portfolio second only to HUL with presence in high potential segments like skin care, hair care, oral care and health supplements. DIL faces little competition from MNC in these segments due to its strong herbal positioning.

Valuation & Outlook

Dabur's large product portfolio, strong domestic presence especially in the rural markets, and its strong herbal positioning would help the company to maintain its strong growth going forward. The stock is currently trading at 29.2x FY13E P/E and 24.4x FY14E P/E and we have a 'BUY' rating on the stock with a target price of Rs 155 implying an upside of ~20% from the current levels.

Technical Outlook

The stock has given upward breakout of upsloping channel on the weekly chart and is expected to head towards 155-160 in long term while support comes @120-112.The breakout has come with an increase in volume which increases the reliability of the formation.

Source : Equity Bulls

Keywords