The company's power-brand strategy helped it achieve revenue momentum supported by 11 percent volume growth in FY19 and 9.6 percent in Q1FY20
Amid talk of a slowdown in the consumer segment and a poor showing by most FMCG players in 2019, Dabur has managed to log decent gains.
The stock had outperformed benchmark Sensex in three out of five calendar years, including 2019 so far, data from Ace Equity shows.
Some of Dabur's FMCG peers such as Emami, Godrej Consumer Products and Britannia have lost 25 percent, 21 percent and 14 percent, respectively, of their market value in the calendar year 2019 so far.
What helped Dabur endure the slowdown headwind?
Brokerage Centrum Broking said in a recent report that the company's management was of the view that its power brand strategy yielded good results and helped it achieve revenue momentum supported by 11 percent volume growth in FY19 and 9.6 percent in Q1FY20.
Despite a weak macro-environment, it gained market share in most categories in FY19 and looks set to maintain its upward march.
"Dabur’s focus on Ayurveda coupled with direct distribution and aligning its resources around power brands should deliver higher penetration and revenue growth," Centrum Broking said.
The brokerage has a buy recommendation on the stock, with a target price of Rs 487.
HDFC Securities, too, maintains a buy recommendation, with a target price of Rs 497, saying the stock is more than just a rural play.
"We are confident that Dabur can outperform over the next three-five years. The current slowdown might impact the near-term performance but we expect a mean reversion for many brands over the next few years. We see a re-rating potential in Dabur and are upgrading the target multiple to 40 times (38 times earlier) on September 2021 earnings per share (EPS),” said the brokerage.
The company's focus on innovations and new product launches is also expected to help the stock.
"Innovations, which had taken a back seat in the last few years, have picked up now. Product launches and renovations are expected to steer growth in the current environment," said Nirmal Bang Securities.
With more than 67 lakh outlets, the company's distribution reach is the widest in the country . It aims to increase the direct reach to about 12 lakh outlets by the end of FY20 from 11 lakh now, Nirmal Bang added.
Is Dabur still an attractive bet?
While the outlook is fair, there are risks of irrational competition and deteriorating macroeconomic health, which may dent the demand. So, the successful execution of the planned strategy will be the key.
"Dabur has pinned its hopes on the early festival season, monsoons and the likely impact of government boost for rural India. We believe that Dabur remains vulnerable to the current slowdown in rural markets and poor consumer sentiments," said brokerage Prabhudas Lilladher.
The brokerage has a hold recommendation on the stock, with a target price of Rs 437.(Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.)The Great Diwali Discount!
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