Weekly Tactical Pick: Dabur

As a weekly tactical pick, we have identified Dabur, which can disproportionately benefit from the new government's expected policy measures. The first Union Budget from the new government is likely to address glaring rural distress, due to which demand growth slowdown is visible in the entire consumption basket – from durables to staples.

Volume growth moderation Dabur’s volume growth in the last quarter moderated to 4.3 percent, in-line with sector-wide trend. It came on relatively high base of 7.7 percent in Q4 FY18 and was in sharp contrast to the average 12 percent volume growth seen in the previous six quarters. Large part of this moderation is due to rural slowdown. Till September 2018, in the case of Dabur, rural demand was growing at 1.3 times that of urban, but the same has moderated to 1.1 times in the last quarter.

We believe that policymakers are likely to address the rural distress and announce measures that can help improve rural demand. In terms of order of effect, consumption of relatively essential daily items such as staples should improve first. Dabur, which has around 45 percent of sales accruing from rural areas, should benefit from this.

Additionally, the following trends remain favourable:

Strong positioning in Naturals: In the healthcare segment, the company continue to post double-digit growth led by demand for Chyawanprash and digestives. In the case of honey, management commentary suggests that Dabur has recouped market share loss to a great extent. Health supplements (Chyawanprash, Honey) sales have grown 25 percent in the last two years.