Brokerages have raised their target prices for Dabur India Ltd. saying that the company was better placed to enjoy the benefits of a potential uptick in rural demand. The upgrades come a day after the FMCG major posted first quarter earnings in line with analysts' estimates.
In the June quarter, the ayurvedic product-maker's performance was driven by easing inflation, which allowed consumers to spend more on its personal care products. The net profit rose 8.26% over the previous year to Rs 494.4 crore, while revenue rose 6.98% to Rs 3,349.1 crore.
Nomura Research maintains a 'buy' rating and raised its target price from Rs 680 to Rs 750, implying a potential upside of 16.6%. It said the company had been witnessing better growth in rural versus urban over the past three quarters, whereas the industry has only been experiencing this over the past two quarters.
Near-term growth momentum is expected to improve as healthcare growth accelerates post the new head taking over. Investment in power brands with 1.5–2 times higher ad spending and exhibiting stronger scientific claims is leading to better-than-category growth, according to Nomura.
The brokerage also likes the company's forays into large categories, such as spices, baby care, fruit drinks, edible oils, specialised tea, and culinary, along with a separate distribution for home and personal care, foods and juices, and targeting a new channel of eating and drinking outlets.
We expect the gross profit margin to improve with a better mix, but the operating-margin improvement can be modest as Dabur will invest in higher advertisement and promotion for sustained growth.Nomura Research
Nuvama Institutional Equities maintains a 'buy' rating and raised the target price to Rs 760 from Rs 640 apiece, implying a potential upside of 18.1%. It cited rural recovery and likely strong winter/healthcare performance in the December quarter due to La Nina as positive triggers.
Nirmal Bang maintains a 'buy' and raised target to Rs 745 from Rs 725 per share earlier, implying a potential upside of 15.8%. It said Dabur was better placed to take advantage of the tailwinds in favour of rural consumption vis-a-vis peers. "Its track record on the top line has been exemplary compared to peers."
Downside risks include lower-than-expected growth from newly entered categories, loss of volume growth/market share in core categories and sharper-than-anticipated raw material cost inflation, leading to pressure on the margin, according to Nirmal Bang.
Adverse fluctuations in foreign-exchange rates affecting businesses in overseas markets and increase in competitive intensity due to greater aggression by competitors are also some of the risks, the brokerage said.
However, Citi Research, which has a 'sell' rating for the stock, said the risk-reward is unfavourable at current levels as the stock has run up 22% over the three-month period and now trades at 52 times its one-year forward consensus price to earnings. Given the broader market and sector re-rating, the brokerage raised the stock's target price to Rs 600 from Rs 550 apiece earlier, implying a potential downside of 7.5% from the previous close.
Dabur's stock fell 1.08% during the day to Rs 637.40 apiece on the NSE. It was trading 0.55% lower at Rs 639.95 per share, compared to a 1% decline in the benchmark Nifty at 10:26 a.m.
The stock had gained 1.5% in the previous two sessions. The share price has risen 14.64% on a year-to-date basis and 15.54% in the last 12 months. The total traded volume so far in the day stood at 0.41 times its 30-day average. The relative strength index was at 57.81.
Twenty-nine out of the 43 analysts tracking the company have a 'buy' rating on the stock, 13 recommend 'hold' and one suggests 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 4.6%.
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