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Research
Dabur India - Building blocks in place; project CORE a catalyst - Motilal Oswal
Posted On : 2014-03-29 02:35:24( TIMEZONE : IST )
No material change in demand; expect 8-10% volume growth
According to the management, demand conditions have not changed materially over the last six months. Early signs of pick-up in urban demand, which the management had alluded to during the 3QFY14 Conference Call, are still evident. If there is no further worsening of the macro environment, we believe Dabur should sustain its 8-10% volume growth band in FY15.
Project CORE: Doubling urban chemist reach
Dabur has launched Project CORE (Chemist Outlet & Range Expansion) to drive penetration of its Healthcare portfolio in urban chemist outlets. It intends to more than double its reach to 75k outlets. We draw comfort from Dabur's superior execution of Project DOUBLE, where it more than doubled its rural reach in two years without diluting margins.
Focus areas for FY15: F&B, Healthcare and Hair Care
We expect Dabur to focus on Food & Beverages (F&B), Healthcare and Hair Care in FY15. We expect new launches/renovations in these categories. Dabur is test-launching Milk Shakes and Drinking Yoghurt; one of these could see national rollout in FY15, in our view.
Mix improvement to drive up margins
We expect gross margin to expand 100bp in FY15, driven by portfolio mix improvement coupled with annual price hikes of 4-5%. However, the gross margin expansion is unlikely to flow through to operating margin in entirety, as we expect Dabur to remain competitive on ad spends to support new launches. We build in 70bp operating margin expansion in FY15.
Reiterate Buy, with a target price of INR200
Consistent volume growth with steady margin expansion should drive our expected 19% EPS CAGR over FY14-16. We like the management's strategy of building long-term growth drivers by enhancing distribution reach and driving portfolio innovation. Dabur offers the best volume led earnings growth visibility and remains our top pick in our tier-II consumer coverage. Maintain Buy with a target price of INR200.
