Dabur India Limited - No short term triggers for re-rating - Antique

We met the management of Dabur to take a view on its next 2-3 year strategy to scale up its business. We believe that the company could witness a re-rating and revival in its performance if it is able to pull-off 1) consolidation of its expansion in rural distribution 2) re-enforcing its strong herbal positioning and 3) scaling up of Namaste's operations in the African markets. However in our view the recovery in performance may not be witnessed during the next 12 months and the ongoing initiatives would fructify over a 12-18 month period. We therefore believe that the stock lacks triggers in the short term. The stock is trading at a PE of 25.1x FY14e and 22.0x FY15e. We value the stock at 23x FY15e to arrive at a target price of INR139. Hence we maintain our HOLD recommendation on the stock at the current levels.

Namaste's performance could take 12 months to improve

In our view Namaste's re-structuring would take about 12-14 months to make an impact. Dabur is working towards creating an efficient supply chain for Namaste in the African markets. The company is setting up manufacturing facilities in three destinations, Middle East, Nigeria and South Africa and is simultaneously working towards re-structuring of the existing distribution network.

Focusing on profitable growth in the rural markets

Dabur plans to capitalise on the rural opportunity through consolidation of its increased distribution reach in the rural markets. In our view, this strategy would be the key driver of performance for the company in the coming years. Even in the short term, in the next 12 months, we believe that the maximum surprises if any would be provided through this initiative of the company.

To stress on herbal based value added products in toothpastes

Dabur plans to strengthen its toothpaste portfolio on the herbal positioning and launch of value added products under Babool like Babool salt. We believe that with rising aspiration levels in the rural markets and changing lifestyle, the demand for gel based toothpastes have been rising and this could be of a disadvantage for Dabur in the oral care portfolio.

To focus on almond hair oils in the hair care portfolio

In the hair care portfolio, company plans to focus on Almond hair oil, where the profitability is higher, penetration levels as well as competition is lower. Nevertheless, Dabur is focusing on strengthening its Amla hair oil in the south Indian markets through high brand spends and media campaigns.

Source : Equity Bulls

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