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On a roll…

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 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 total distribution reach of 6.9 million retail out with direct reach of 1.3 million outlets. It would increase direct distribution to 1.5 million outlets in the next two years

* Dabur also derives ~48% of its sales through rural regions with a presence in 83,000 villages, which would increase to 90,000 villages in next one year

Q2FY22 Results: Dabur reported healthy results with 10% volume growth

* Sales were up 12% YoY with strong growth across segments

* EBITDA was at | 620.7 crore, up 9% YoY, with margins at 22%

* Consequent PAT was at | 505.3 crore (up 4.6% YoY)

What should investors do? Dabur’s share price has given 100% return in the last five years (from | 298 in November 2016 to | 598 in November 2021).

* We maintain our estimates with expected strong growth propelled through new product, rural distribution & Ayurveda, naturals consumption tailwind

* We continue to maintain our BUY rating on the stock

Target Price and Valuation: We value the stock at | 745 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 into many big categories (edible oil, carbonated drink, household insecticides, fruit drinks) and new products launches

* Increasing the distribution of many urban products in hinterland reach of 83,000 villages) with lower price points & different variants (‘honey Tasties’)

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

* With normalisation of mobility, full-fledged summer season after acquisition of south & west territories is likely to drive robust volume growth

* Value the business at 23x CY23 EV / EBITDA. BUY with TP of | 1020

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