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Aiming to penetrate Bharat markets – Ghar Ghar Dabur

We attended ‘Capital Markets Day - Analyst meet’ organized by Dabur. Dabur reported consolidate/standalone 4-year revenue CAGR of 7.8%/8.5%, yet its recent performance was bit volatile. Riding on rising consumer preference for Natural products(69.1%), Dabur aim to embark on the journey build penetration, using its ayuverda heritage backed by scientific claims. Dabur has identified six strategic pillars, (1) winning portfolio and innovation, (2) fit for purpose GTM, (3) building capabilities and culture, (4) operational excellence, (5) digitization, and (6) profitability enhancement. Targeting younger population it has tripled its TAM (1.2trn) and retooled its strategy Dabur 2.0, moving from power brands to power platforms with emphasis on stronger scientific claims. Using digital transformation it aims to increase penetration thorough new age formatsdriving distribution efficiency. Its operating model changing to more agile and accountable BUs. Management guided,its EBITDA marginsinched up and settle in the range of 19-20% in FY24. We retain BUY rating with DCF-based Target Price of Rs638 (implying 46.2x FY25E EPS).

Healthcare recovery underway; poised for long term growth

Healthcare business, with 31.2% revenue contribution saw 3-year revenue CAGR of 9.3% driven by (1) product extension through power brands and (2) entered new categories like Baby care (TAM-Rs114bn) & Tea (TAM-Rs47bn). Newly formed Therapeutics division targets to enter Rs2trn prescription (Rx) market, expanding its branded ethical range and coverage of allopathy as well as ayurvedic doctors using advocacy route backed by coverage of 300k chemists and ~400 feet-on-street. This division, beyond lifestyle disease sees strong opportunity to participate in newer therapy and nutraceuticals segments. Therapeutics division target to achieve Rs50bn revenues in the mid to long term

HPC is on the right track –organic growth would be high single digit

HPC business grew 2-year revenue CAGR of 9.0% led by gaining traction from urban HH seeking for Naturals products (69.1%). Winning across categories with market share gains, Dabur sees strong premiumisation opportunity in the HPC portfolio using RISE strategy. The company has already launched premium tooth paste (charcoal, herbal, oil pulling), cooling hair oil (Kool King), hair spray, Odonil gel pocket, Charcoal bleaches etc. Dabur aspires to grow double digit with ambition to achieve Rs70bn revenues in medium term.

Food & Beverages playbook revolve around Trust-Taste-Health driving OOH consumption

F&B business reported 4-year revenue CAGR of 14.0% led by CAGR 14%/16% growth Foods and beverages. In juices it gained 360bp market share over last four years. With 8.7% NOD contribution, Dabur aim to revive F & B segment with, (1) focus on healthier beverages, (2) persuasive communication and (3) superior packaging. With Hommade (cooking aids) and Badshah acquisition Dabur plans to enter large categories with differentiate offering & trust.

International Business largely HPC – new leadership driving growth from localisation

International business contribute 25% of revenue with major markets like MENA, SAARC & North America largely driven by HPC segment. Management believes core business would grow through localisation, increased innovation along with improving e-commerce saliency.

Valuation and risks

With rising TAM and performance led culture, Dabur retooled its strategy from power brands to power platforms expect to deliver operational efficiencies meeting operating profit target ~19.5%. Normalization of healthcare business and margin improvement in international/HPC business coupled with steady growth in recently acquired Badshah Masala to show up in margin recovery in our view. We retain BUY rating with a DCF-based TP of Rs638 (46.2x FY25E EPS). Risks to our call include tepid demand along with irrational competition.
 

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