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Holistic strength: Multiple growth drivers

Dabur remains among our top ‘BUY’ calls based on: i) healthy recovery in demand for juices and out-of-home products; ii) strategy of replicating naturals’ template to shampoos from toothpaste; iii) market share gains across portfolio; iv) impressive innovation funnel; and v) growing e-commerce play (7% of business). In Q2FY22 too, Dabur sustained top-tier volume growth of the past few quarters (spanning the pandemic), and is the top performer in staples with 28% volume growth on a two-year basis. Currency volatility in international business, particularly Turkey is a key risk.

Given aforementioned positive structural levers falling in place, we maintain ‘BUY’ on Dabur with a TP of INR720.

Revival in out-of-home and winter portfolio

With improving mobility, there is a strong revival in out-of-home consumption. As per Bizom, beverages saw revenue growth of 22.1% YoY in October. Dabur is well positioned to take advantage of this through its Real brand. With consumers now back to offices and travelling, Dabur’s personal care should see good demand (in October, personal care, industry-wide was up 17.6% YoY, as per Bizom). India is likely to see a harsh winter this year due to the La Niña effect, which can translate to higher demand for Dabur’s immunity as well as winter care products.

Innovations aid market share

Dabur has gained market share in 95% of its portfolio. Its overall NPD ratio is about 4.6%. Innovations such as Honey Tasties, Real Fizzin, Hommade brand, Fem and Oxy, Vatika Ayurvedic and Neem shampoo would help Dabur cater to the increasing need of convenience and natural-based brands. The company has seen share expansion in toothpaste (40bps), hair oils (80bps), Chyawanprash (520bps), honey (430bps), Odomos (120bps), Odonil (210bps), Real brand (100bps) and shampoo (30bps). Dabur’s herbal shampoo play could follow the template of toothpaste. Herbal’s salience in shampoo is sub-10% versus 32% in toothpaste. Dabur has consistently grown ahead of industry in toothpastes with a 27–30% share in herbal (toothpaste).

Outlook and valuation: Salubrious growth in the offing; retain ‘BUY’

Dabur’s rural growth continues to be robust. Though the health and immunity based products may moderate somewhat, we believe it would be more than compensated for by strong demand in the food, beverage, personal care, skin and salon segments. The oral care and OTC segment will continue to steadily gain market share. Besides, the CEO’s palpable focus on market share, strengthening distribution and growing ecommerce would help Dabur take advantage of demand recovery. Currency volatility in international business, particularly Turkey, is a key risk.

We expect volumes to be robust, owing to company-specific strategies, expansion of the herbal market and strengthening rural distribution. Reiterate ‘BUY/SO’ with a TP of INR720.

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