Dabur India - Poised For Strong Earnings Growth Over Medium Term: Motilal Oswal

Motilal Oswal Report

Dabur India Ltd. continues to grow and gain share despite persistent challenges in key categories. The recent softening in inflation and improved rural demand have contributed to a revival in volume growth across its portfolio.

The company has achieved a high single-digit revenue compound annual growth rate in four years, aided by:

1. its focus on the core segments along with Ayurveda,

2. a proven Power Brand strategy,

3. its vigor in innovation backed by sustained advertising and promotion spends, and

4. its growing distribution reach (especially direct reach and rural coverage).

We believe Dabur India can achieve even double-digit growth as both allopathic and Ayurvedic doctors have become open to prescribing medicines from different systems and the current trend of market share capture sustains.

Dabur India’s international business is also well diversified in terms of segments, with a focus on leadership in South Asian, Arab, SSA, SEA, and Eastern European households through media campaigns and product innovations. The company aims to expand distribution, launch region-specific products, boost growth to double digits and achieve an operating margin of over 20% by optimising overheads.

The company sees a strong revenue growth opportunity in its three major domestic segments. Even in the food and beverage segment, which appeared to have stagnated earlier, a foray into new sub-segments offers renewed prospects. The recent F&B performance is encouraging, as superior packaging, expanding outof-home beverage offerings in various price points and formats and introducing PET will further boost overall business.

Given the healthy earnings growth outlook, the stock is currently trading at 43 times FY25E earnings per share, a 20%/25% discount to its historical three/five-year averages.

We maintain our 'Buy' rating on the stock with a target price of Rs 660, valuing the company at 50 times FY24E price/earning.

Downside risks to our investment case include:

1. a persistent and intensified rural slowdown,

2. a spike in material cost pressures,

3. higher-than-expected moderation in the demand for herbal health products as the pandemic recedes, and

4. a reversal in recent market share gains.

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