Dabur India - Urban legends: Channelising CORE growth - Edelweiss

We recently met Mr. Sunil Duggal, CEO. Dabur anticipates volume growth in the 8-12% YoY range in FY15E (double digit if urban demand revives) riding innovations and novel distribution initiatives in chemist channels (project CORE). Hair oils, a mature category, remains a concern and is likely to grow slower than home and health segments; hence, Dabur is focusing on innovations like Vatika Enriched Coconut Oil with hibiscus, Vatika Olive Enriched Hair Oil. The company remains one of our preferred picks underpinned by its higher volume growth, innovations and aggressive distribution drive (Project Double spurred 300bps rural EBITDA margin surge; project CORE initiated). Maintain 'BUY'.

CORE to the fore: Mapping next leg of urban spurt

With modern trade (25% plus growth) outpacing other channels (rural growing at 14%, general trade at 11%) increasing salience of modern trade is propelling urban growth rate (at 14%). Urbanisation along with company's focus on enhancing product mix will boost urban growth (aided by low base of past few years). Dabur has initiated Project CORE—to enhance distribution of health care and personal products portfolio. In the first phase, Dabur will increase chemist coverage from current 75,000 to 125,000.

Fuelling innovation fire to spur volume growth

On Dabur's anvil are new offerings in beverages and health supplements in Q1FY15E. The company's sustained volume surge has outpaced most peers owing to relentless focus on innovation. We believe innovation is imperative to renovate the existing portfolio to keep consumer interest afloat and drive volume-led growth. Accelerated innovation mandated high A&P (up 80bps YoY in Q3FY14 to 15.2% of sales), which we expect to normalise gradually.

Outlook and valuations: Positive; maintain 'BUY'

Dabur is well placed in the consumer space with differentiated offerings and investments in future growth drivers (distribution, new launches). At CMP, the stock is trading at 28.5x and 24x FY15E and FY16E EPS, respectively. We maintain 'BUY/SO'.

Source : Equity Bulls

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