Shares of Dabur India Ltd., the home-grown FMCG company, were trading marginally higher at Rs 299.40 at around 2.40 pm on the BSE on Thursday even as it got an upgrade from Japanese financial services firm Nomura. The 52-week high and low for the scrip are Rs 323.20 and Rs 258.80, respectively. In the past three months, the stock has rallied 11.10 percent.
The company’s recent performance due to issues such as demonetisation and de-stocking by dealers due to GST have overshadowed its consistent growth over the years, according to Manish Jain, analyst at Nomura Financial Advisory and Securities (India) Private Limited, or NFASL.
Raising the target price for the Dabur stock to Rs 345, ~15 percent upside from the current price, Jain said, “We do believe that valuations still are quite reasonable, especially compared to its peers, and that when compared to the impending recovery in earnings in 2HFY18F, risk-reward inherently remains favourable.”
The company had posted a 10 percent YoY fall in consolidated net profit to Rs 265 crore and 8.3 percent YoY drop in sales to Rs 1,790 crore for the June 2017 quarter, due to “massive de-stocking by trade channels” before the implementation of the goods and services tax (GST) from July 1.
Long-term play
In an industry comprising Hindustan Unilever, Godrej Consumer Products, Colgate Palmolive, Emami and Marico, Dabur is a long-term play if one were to ignore the temporary blip and look at the future prospects. “We believe that the core portfolio continues to remain quite strong with Dabur exhibiting leadership across several categories. Low base, normal monsoons, festive season and revival of rural demand are some of the factors which should lead to demand revival, in our view,” the Nomura analyst said in his note.
“Dabur has a strong and diversified portfolio of brands spanning across several categories. More importantly, it also has a strong ability to counter rising competition as it has exhibited in the oral care segment where it has not only
grown faster than leader Colgate (CLGT IN, Buy) but has also gained market share despite Patanjali’s (unlisted) rise. We believe the long-term story remains intact,” he added.
The company’s projected revenues and net profit for FY2018 are Rs 8,240 crore and Rs 1,415 crore, marking a slightly revision from Rs 8,472 crore and Rs 1,390 crore, though the EBITDA margin is expected to remain almost unchanged at 19.5 levels for the current fiscal and FY2019.
The RoE is expected to come at 26.5 percent for both FY2018 and FY2019 based on the projections, according to Jain.
Significant market share in key segments
The company is one of the key players in many segments, notwithstanding intense competition from rivals. “Dabur occupies a top three position in five categories (skin bleach, hair oils, toothpaste, honey and juices), with market share
ranging between 10% and 54%. Together these five categories represent an Rs 210 billion (Rs 21,000 crore) per annum opportunity where Dabur has traditionally been a strong player with deep consumer insight and strong brand equity,” Jain said.
At the target price of Rs 345, the market capitalisation of Dabur will be $8,210 million, making it the third-largest, behind Hindustan Unilever and Godrej Consumer Products.
At closing hours, the BSE Sensex was trading 20 points higher at 31,582. Stock markets will be closed tomorrow (August 25) on account of Ganesh Chaturthi.
