Motilal Oswal feels Dabur offers the best visibility among peers in its coverage universe due to its rural dependence and a large part of its portfolio being non-discretionary in nature.
Dabur India shares closed with moderate gains of half a percent on June 30 after rising 1.8 percent intraday on Motilal Oswal upgrading the stock to “buy”.
"The company has been re-energized with (a) renewed focus on the Ayurvedic healthcare products business, (b) implementation of the power brand strategy leading to far sharper focus than in the past, (c) increasing appeal to the millennial through sampling, better communication and improved availability of Dabur's products, and (d) sharp pickup in pace of new launches (which was duly delivered on the launches front in FY20)," the brokerage house said.
Unveiling of plans to plug the gaps on direct reach and technology and analytics (T&A) are highly encouraging too, it said.
Ayurvedic healthcare products business contributed 30 percent to the company’s domestic sales during FY20. These products are witnessing strong traction and the company expects revenues at 35 percent of sales in FY21.
According to Motilal Oswal, if the changes are executed well, Dabur will be the most exciting investment opportunity in the Indian consumption space over the next four to five years, with potential earnings growth of 15-20 percent CAGR.
Looking beyond near-term valuations is essential in a business undergoing a gradual but evident transformation in its top line and earnings growth path, it said.
Dabur offers best visibility among peers in its coverage universe beyond Q1FY21 due to its rural dependence (highest among domestic companies, barring Emami), and large part of its portfolio being nondiscretionary in nature, the brokerage said.
It has upgraded rating on the stock from “neutral” to “buy” with a target of Rs 535, implying a 15.3 percent potential upside from current levels.
The company in the Q4FY20 post-results call said Q1FY21 sales will be affected due to delay in classification (by the authorities) of Ayurvedic products as essentials.
"However, outlook beyond the quarter is good. The MENA business (the largest part of Dabur's international business) is the only concern for the current year," it said.
The stock closed at Rs 467 on the BSE up 0.65 percent after hitting an intraday high of Rs 472.55 and low of Rs 464.90.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.