Dabur - Distribution led growth - HDFC Securities

Dabur is taking on competition head on, with its ambitious rural distribution plan (90% implemented) and revamp in product portfolio backed by increase in ad spend. This along with sustained dominance in Fruit Juice category makes us confident of it to achieve 10% volume growth in FY13E. However due to geo-political tension in MENA region, international business may come under stress but it is partly offset by growth opportunities. Recommend OPF on the stock with TP of INR 145 (24x FY15E).

Focusing on volume growth : right approach Dabur's constant focus on volume growth against margins makes us confident of its ability to achieve 10% volume growth in FY13E. 1) The company is revamping product portfolio across categories: hair oil (relaunched Amla hair oil); refurbishment of the shampoos (shampoos growth revived in past two quarters), Ethical (relaunch of 30 plus), Skin care (launched new initiatives under the gold and the pearl range in FEM bleach), Air Freshners (introduces air freshening gels under Odonil), Foods (more extensions and variants planned in both Real and Activ range). 2) This is backed by higher ad spend (ad spends jumped 307bps and 175bps in 1QFY13 and 2QFY13 respectively). 3) The fast-growing fruit juice segment (growing at ~17%) is dominated by Real (50% market share). We expect Real to grow faster than the market. 4) 'Project double' (90% implemented) aimed at doubling the direct distribution reach in rural markets. Post this initiative rural contribution has increased from 45% to 47%. The company has total retail reach of 5-5.5 mn outlets (widest distributed product for Dabur reaches 3.5mn outlets).

Global business to grow despite pressures

Due to geo-political tension in MENA region, international business may come under stress but it is partly offset by growth opportunities viz. 1) launched Hobi personal care portfolio in neighboring Middle East, 2) plans to ramp up its Bangladesh business (new factory to be commissioned by end of FY13E). Also, recalibration of ORS brand in US and Africa to aid growth (to take approx. 2 quarters). We expect it to grow by 15-16% in constant currency term.

Valuations : growth concern overemphasized

At CMP, the stock is trading at 24.4x FY14E and 20.7x FY15E. With company's constant focus on volume growth and its herbal positioning we believe the stock to sustain its valuation. Recommend OPF on the stock with TP of INR 145 (24x FY15E).

Source : Equity Bulls

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