Mar 09, 2013 12:13 PM IST | Source:

Accumulate Dabur India; target Rs 153: Sushil Finance

Sushil Finance is bullish on Dabur India and has recommended accumulate rating on the stock with a target price of Rs 153 in its March 08, 2013 research report.

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Sushil Finance is bullish on Dabur India and has recommended accumulate rating on the stock with a target price of Rs 153 in its March 08, 2013 research report.

"Dabur India is the 2nd largest FMCG Company in India in terms of product portfolio. It is also a world leader in Ayurveda with a portfolio of over 250 products. Its FMCG portfolio includes five flagship brands (Dabur, Vatika, Hajmola, Real & Fem). It enjoys leadership position in the following categories: a) Fruit Juices – 52% market share with brands Real & Real Active b) Honey – 50% share with brand Dabur Honey c) Skin Care (Bleaches) – 50% share with brand Fem d) Air Freshener – 40% share with brand Odonil e) Ayurvedic Tonics – 67% share with brand Dabur Chyawanprash and f) Digestives – 56% share with brand Hajmola. It is also among the top 3 players in other high potential categories like a) Hair Care – 12% market share with brands Dabur Amla Hair Oil, Vatika Hair oil & Shampoos, Dabur Almond Hair Oil b) Glucose – 25% share with brand Dabur Glucose and c) Oral Care – 13% share with brands Red Toothpaste & Toothpowder, Babool & Meswak.

Domestic Business – Volumes to Sustain from Sales and Distribution Initiatives: In FY12, Dabur undertook two major distribution related initiatives in its domestic business through Project Speed and Project Double. Under Project Speed which completed in Oct'11, Dabur has re-organised its distribution structure to build scale and maintain focus on 3 specialized categories: Health Care, Home & Personal Care and Foods. It has also rationalized its distributor count from prior 4500 to 3600 and disengaged 80% of Fem and 16% of Consumer Healthcare division stockists and merged it with the Consumer Care division. Dabur launched project double to expand its direct coverage in rural markets and enhance penetration of Dabur's portfolio. Ten states with attractive rural potential - UP, Maharashtra, WB, Bihar, Assam, Rajasthan, Punjab, MP, Orissa & Karnataka - were selected for this. These states accounted for ~70- 75% of the rural FMCG business in India. Pilot was launched in Maharashtra & UP and then extended to other states by the company. It resulted in ~2,000 additional sales personnel at local village level. Benefits of these initiatives have started materializing, as evidenced by sustained 8-10% volume growth momentum in its domestic business. We believe expansion of direct coverage in rural markets will drive domestic volumes and margins for Dabur going ahead. We expect 8-10% domestic volume growth range during FY13E-FY15E.

International Business (~30% of Consol Sales) – Seeing Gross Margins Expansion: Dabur is witnessing massive gross margins expansion in its International operations especially in the Middle-East and Turkey due to the correction in input costs. The management expects this trend to continue at least for a few more quarters. We believe its international volume growth and margins will improve going ahead as the company is spending heavily out of margins expansion gain on Advertising and Promotions (A&P).

US-Based Subsidiary Namaste – Complete Turnaround Expected in FY14: US & Africa market contributes 70% & 30% resp. to the Namaste's sales. The management expects Namaste's US & Africa businesses to be back on track from Q4FY13 which was impacted by re-branding in the US & restructuring in Africa. According to the management, Namaste's US business is expected to take atleast 2 more quarters to get back on its feet completely as the change in branding from Organic Root Stimulator to ORS due to regulatory reasons resulted in a massive disruptive changes on the ground with regard to drying up of pipelines, alteration of entire brand architecture, communicating the same to trade & relisting. Dabur has increased its focus on Namaste's Africa business and initiated steps like: a) big transitions at the management level by putting some key people from India & Dubai b) Implementation of SAP's enterprise software & c) plans to push locally manufactured products into four parts of Africa in FY14.

Recovery in core categories and Opportunity in Foods Biz – To Sustain Volume Growth: Dabur's domestic market share in Hair Oils and shampoos has stabilized and is demonstrating a steady trend.According to the management, the growth outlook for shampoo is good as the disruptive competition has abated a bit and there is good potential still left in South India which it will be tapping going ahead. The company also expects good growth from Foods business as it plans to increase its dominance in South & West India which will be catered through a new plant coming up in Sri Lanka by Q1FY14. We expect benefits from recent innovations, distribution expansions & new products/variants launched in last 18 months to kick in from FY14 which will further drive recovery in core categories and consolidate its competitive positioning.

OUTLOOK AND VALUATION: Considering strong brand portfolio, leadership position in Ayurvedic/Herbal products, recent domestic distribution & sales re-alignment, favourable domestic & International sales mix, expected turnaround of its Namaste business, recovery in core categories, Greenfield unit in Sri Lanka for packaged Fruit Juices, innovation initiatives & introduction of new products/variants, we expect Dabur's Revenues & APAT to grow at a CAGR of 14.8% & 18.9% resp during FY12-FY15E. We believe the current pressure on discretionary staples in India will not impact Dabur as it contributes only 10% to its domestic sales. At the CMP of Rs.133, the stock trades at a valuation of 21.4x its FY15E EPS of Rs. 6.2. We initiate coverage with "Accumulate" rating & target price of Rs. 153 (24.5x FY15E EPS, which is its 5 Yrs Avg P/E)," says Sushil Finance research report.

Institutional holding more than 40% in Indian cos

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