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We recently participated in Dabur India Ltd. (DABUR’s) Capital Markets Day held after a gap of four years. The management used the occasion to exhaustively highlight the business structure changes over last four years, resultant performance, and vectors of future growth. Key takeaways: 1) Dabur’s key task is to accelerate the growth momentum, looking at double-digit growth for next four years. 2) Restaging portfolio for younger India without changing the core, 3) Improve premium product mix while adding more LUP’s for rural penetration. 4) Rural growth improved versus last year but still not reached its full glory seen 1.5 years back, 5) Dabur can easily deliver ~19.5% operating margin in FY24 (with an upside bias we believe) and targets 20%+ margin beyond FY24. We continue to assign ~48x on March’2025E EPS (3yr/5yr avg fwd. multiple: ~54x/52x), giving us an unchanged target price (TP) of Rs625. Maintain ADD.

Vectors put in place four years ago have contributed to improved growth

Vectors set in place four year ago have led to improvement in penetration (Dabur’s Portfolio Penetration now stands at 76% vs 69% in FY19) and market share gains across categories (refer exhibit 2). This has resulted in increase in growth rate to ~8% CAGR over FY19-23 versus a CAGR of ~2% in the previous four years for the consolidated business.

Eyeing double-digit growth

Dabur has given itself the task to accelerate the growth momentum further and is looking at double-digit growth for next four years. Within domestic business (~75% of consol.), (1) Dabur aspires to grow Home & Personal Care (HPC) in double-digits with an ambition to reach Rs70bn topline in medium-term; (2) For Healthcare portfolio it maintained an internal target of ~9% CAGR but the goal is a much bullish number of Rs50bn in next 4-5 years, which imputes to mid-teen’s growth; (3) In the foods and beverages (F&B), the company aims to grow in double-digits over the medium to long term. For the international business (~25% of consol.), Dabur is looking at double digit constant currency (CC) revenue growth.

Portfolio changes and distribution targets

Dabur is restaging portfolio for younger India without changing the core of the business (stronger scientific claims, new age formats, aspirational packaging), growing the TAM through power platform strategy (e.g. Real, Dabur Amla, etc) & expansion of existing categories (e.g. Therapeutics, Baby Care, etc.) and focusing on digital (at 9%, ecom contribution already best in the industry). It aims to have more premium products in the power brands as the number of upper-middle-class people grows, this will inturn inch up gross margins. In addition, it will add more Low unit packs (LUP) for further penetration in rural. Dabur already has the second highest reach within the FMCG space and targets to reach 8.5mn outlets (1.6mn direct) in near term from 7.9mn outlets (1.4mn direct) currently with ~19% increase in village coverage to 120k villages in near term.

Near term demand and margin outlook

Wth inflation moderating, there is an uptick in urban as well as rural demand compared to last year. April to June’23 were good demand months. July was ok but August was a dampener. Business has picked up again in September. While volume growths are improving versus last year, but rural still not growing at its full glory seen 1.5 years back. Dabur mentioned that its operating margin contraction in FY23 was least among FMCG peers. It saw ~25% inflation in last two years (12.7% in FY22 & 12.6% in FY23) and took a price increase of ~14% (5.5% in FY22 & 8.4% in FY23). Through Project Samriddhi initiative, Dabur saw a cumulative saving of Rs1.32bn in FY22 & Rs2.08bn in FY23. It has further stepped up efforts on Project Samriddhi and is targeting ~1.2x savings in FY24 with around Rs1bn of initiatives already in pipeline for FY25. Dabur can easily do 20.25%-20.5% EBITDA margin in FY24 but it will use gross margin improvement and savings (from value engineering, operation effeciency, sourcing effeciency and working capital improvement) towards brand investments (targeting 8-10% adpro ratio) and digitization efforts across oragnization. Thus it believes, it can easily deliver around 19.5% operating margin in FY24 (with an upside bias we believe) and targets 20%+ margin beyond FY24.  

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