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About the stock: Dabur India (DIL) is one of the biggest FMCG companies with a presence in Ayurveda based products across categories. The company has substantial market share in health supplement, OTC & Ethical products, oral care, hair care, home care & juices.

  * The company has a total distribution reach of 7.7 million retail outlets with direct reach of 1.4 million outlets. It plans to increase direct distribution to 1.5 million outlets. Dabur also derives ~50% of its sales through rural regions with a presence in                100,000 villages

Q4FY23 Results: Dabur reported 6.4% sales growth led entirely by pricing growth.

  * Domestic sale was up 4.7% YoY, led by strong growth in food & beverages

  * EBITDA was at | 409.8 crore, down 9.6% YoY, with margins at 15.3%

  * Consequent adjusted PAT was down 22.8% at | 292.8 crore

What should investors do? Dabur’s share price has given 44% return in the last five years (from | 366 in April 2018 to 529 in April 2023).

   * Currency headwind in the international business & normalise sales of health supplement in post Covid period adversely impacting margins

   * We continue to maintain our BUY rating on the stock

Target Price and Valuation: We value the stock at | 675 on ascribing 52x FY25 earnings multiple.

Key triggers for future price performance:

 * The decline in commodity prices would help improve the rural demand scenario. The company would increase advertisement spend to support new products communication in turn volume gro

* The company is targeting doubling sales of food & beverage category to | 4000 crore in the next five years through extension of existing brands in fruit drinks, homemade & acquired Badshah brand. The company would be entering fizz space in                beverage category

 * Rural distribution expanded to 1 lakh villages. Increasing direct distribution reach & e-commerce presence to support under-penetrated categories

Alternate Stock Idea: We also like TCPL in our FMCG coverage.

 * Strong innovation & premiumisation strategy in salt, tea, Sampann & Soulful in India market expected to drive sales & margins

 * We value the stock at | 980 on ascribing 55x FY24 earnings multiple.

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