Buy Dabur India Ltd For Target Rs. 740 - ICICI Direct
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Robust volume growth across categories…
About the stock: Dabur is one of the bigger FMCG companies with a presence in Ayurveda based products across categories. The company has a dominant market share in health supplement, OTC & ethical products, hair oils & juices. Moreover, it is continuously gaining market share in the oral care category.
* The company has a total distribution reach of 6.9 million retail outlets with direct reach of 1.3 million outlets. It is expected to increase direct distribution to 1.5 million outlets in the next two years
* Dabur also derives ~50% of its sales through rural regions with a presence in 60,000 villages, which would increase to 80,000 villages in next two years.
Q1FY22 Results: Dabur reported splendid volume growth in Q1FY22 results.
* Sales were up 31.9% YoY with strong growth across segments
* EBITDA was at | 552 crore, up 32.5% YoY, with margins at 21.1%
* Consequent PAT was at | 437.7 crore (up 28.2% YoY)
What should investors do?
Dabur’s share price has given 107% return in the last five years (from | 296 in August 2016 to | 614 in August 2021).
* We roll over FY24 numbers on expectations of continued growth momentum with health, Ayurveda & natural consumption tailwinds
* We continue to maintain our BUY rating on the stock
Target Price and Valuation: We value the stock at | 740 on ascribing 55x FY24 earnings multiple.
Key triggers for future price performance:
* Significant shift in consumption towards healthier, natural & Ayurveda based products would be driving growth for the company
* Aggressively foraying in many big categories (edible oil, carbonated drink, household insecticides, fruit drinks)
* Increasing the distribution of many urban products in hinterlands with lower price points (fruit drinks, juices) & different variants (‘Honey Tasties’) Alternate Stock Idea: We also like HUL in our FMCG coverage.
* With synergistic benefits of acquired nutrition business, strong premiumisation trend & strong distribution, HUL would continue to grow the revenues at a sustainable pace
* Value the business 55x FY24 earnings. BUY with a TP of | 2,750
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