Buy Dabur India; target of Rs 464: HDFC Securities

HDFC Securities' research report on Dabur India

Domestic revenue/volume grew at 6/4% (13/11% in FY19) vs. our exp of 9.5/6%. Adjusting for 6% de-growth in beverage portfolio, domestic revenue grew by 8.5%. Dabur gained market share in all its categories except for Home care and Skin care (12% combined revenue mix), reflecting continued weakness in competitive intensity (mainly from Patanjali). Mohit Malhotra’s (new CEO) focus is on consolidating A&P investments i.e. disproportionate investments on power brands (like Dabur Amla, Dabur Red, Real etc.) instead on marginal brands. The mgt. believes that these power brands (strong brand equity) have a large addressable market and hence there is an opportunity to gain scale with increased support from investments. International business (27% revenue mix) grew by 2% owing to continued slowdown in MENA region and currency devaluation. EBITDAM declined by 238bps to 21.5% driven by 95bps decline in gross margins (limited price hikes) and 34/10% growth in employee/other expenses. APAT declined by 6% to Rs 3,717mn vs. exp of Rs 4,266mn.

Outlook

We believe the govt. will focus on reviving rural consumption, making Dabur the best play (particularly after the recent stock correction). Our TP is at Rs 464 based on 38x FY21E EPS.

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