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Bleak 2Q does not necessitate a weak outlook

Dabur India (DABUR), in its 2QFY25 preview update, highlighted the impact of heavy rains and floods in parts of the country on out-of-home consumption, particularly for beverages. Besides, the company experienced higher growth in MT, E-commerce, and Quick Commerce during the last few quarters, resulting in high inventory levels for its GT channel. This affected the distributor ROI, and the company made the strategic decision to correct distributor inventory in the GT channel. This led to a temporary decline in revenue in 2QFY25 (which appears to be a high single-digit revenue decline for the India business). However, on the demand front, the commentary was positive across FMCG companies with a promising outlook for 2HFY25. Our checks suggest that high inventory issues in GT are not limited to DABUR but are also experienced by many brands/categories following the success in alternate channels (especially quick commerce). As such, if volume growth in the industry picks up in 2HFY25, we expect that DABUR will also experience accelerated growth. The company has already indicated that primary growth will return to normal from October. With external drivers remaining consistent, we view the recent stock price correction as an opportunity to be constructive on the stock. DABUR is at 16%, 14%, 9%, and 19% discount to HUL, Britannia, Marico, and Colgate, respectively, on FY26E P/E. Once the company’s growth trajectory improves, we expect a re-rating potential in the stock. We reiterate a BUY rating on the stock with a TP of INR700 (at 50x P/E on Sep’26).

Well poised for rural recovery; actively expanding rural reach

DABUR’s rural presence stands at approximately 45-50%, second to Emami, positioning it as a key beneficiary of the rural recovery driven by above-average monsoons, rising incomes, and potential government measures to boost rural spending in 2HFY25 and going forward. Over the past three years, DABUR has nearly doubled its village coverage, expanding from 59,000 villages in FY21 to 122,500 in FY24, and plans to reach approximately 130,000 villages by FY25. With a total of 600,000 villages across India, DABUR has ample opportunity for further expansion. The company's extensive distribution network reaches around 7.9m outlets, with direct access to 1.42m. Additionally, DABUR is enhancing its rural portfolio by introducing new, affordable, and rural-specific product packs across various categories to drive demand growth.

Robust growth in emerging channels

DABUR has been actively evolving its portfolio to increase its shelf presence and expand its reach in modern trade and e-commerce channels. E-commerce now contributes 10% to the company’s sales, with quick commerce emerging as the fastest-growing sub-channel, showing significant growth, and scaling rapidly. DABUR also focuses on boosting visibility and availability in standalone modern trade stores, which has resulted in double-digit growth. In order to further enhance performance in these outlets, DABUR has introduced channel-specific initiatives, such as the 'Pragati' program. The new emerging channels now contribute ~25% to the overall sales.

New product launches to improve demand trend

DABUR has seamlessly integrated its manufacturing and R&D efforts to drive innovation and quickly adapt to changing market trends. The company invested INR442m in R&D, resulting in the development of 14 new products across various categories in FY24, aimed at expanding its premium portfolio and Total Addressable Market (TAM). These launches include DABUR’s entry into emerging and highgrowth categories, such as mosquito repellent liquid vaporizers (Odomos Universal Mosquito Liquid Vaporizer), cooling hair oils (Dabur Cool King Thanda Tel), gel toothpastes, teas, and shower gels. The company’s Digital First brands have collectively generated over INR1b in turnover. New product developments now contribute 3-4% to the overall sales.

Expecting margin expansion

DABUR’s gross margin, which has been under pressure in recent years due to rising commodity costs, is expected to expand in the medium term with stabilization in input prices, premiumization, and cost-efficiency initiatives taken by the company. Additionally, the appointment of Mr. Philipe Haydon, who joined as the head of the healthcare division last year and brings a strong track record in category creation from his tenure at Himalaya, bodes well for the segment's medium-term growth. This growth is particularly significant as the healthcare segment is more profitable than the rest of DABUR’s portfolio, with the potential to drive EBITDA growth over the next two years.

Healthcare segment to be a major focus area

DABUR holds a competitive advantage over its FMCG peers through its strong healthcare portfolio. We expect high single-digit growth in this segment, driven by the increasing preference of consumers for Ayurveda-based products, entry into new categories, and premiumization trends. Health supplements, particularly Dabur Glucose, are performing well, with the brand gaining market share. The value-added variants of Dabur Glucose have outpaced regular glucose, contributing positively to margins. The Digestives category is also gaining traction, led by the success of the Hajmola franchise and Pudin Hara. New launches, such as Hajmola Mr. Aam and Hajmola Jeera drinks, have been well-received. Additionally, Health Juices, Dabur Baby, and branded ethical products have experienced strong double-digit growth. DABUR anticipates its health juices to contribute INR 500m to revenue in FY25.

HPC - Oral care to sustain outperformance

DABUR’s oral care segment posted double-digit value growth in the last quarter and high single-digit volume growth over the past two years. This performance was driven by market share gains in the natural segment and expansion into non-herbal categories. Meanwhile, the hair oil segment experienced a mixed performance. Coconut oil remains strong, while Dabur Amla hair oil faces challenges due to price cuts and increased competition. In order to boost growth in the hair oil category, DABUR plans to focus on premiumization, explore new sub-segments, and pursue both organic and inorganic growth opportunities. The shampoo category continues to perform well, and Odomos liquid vaporizers are gaining traction as DABUR shifts its focus toward mosquito repellency solutions.

Mixed performance in food and beverages

The beverages segment was under pressure in 1HFY25, with 1Q impacted by severe heat waves and 2Q affected by heavy rains and flooding across parts of the country. In contrast, the food category experienced robust performance, with both the Homemade and Badshah brands delivering strong results. DABUR has set a strategic target to generate INR 6-7b revenue from Badshah over the next three years.

Steady international market

The company utilizes diverse distribution models across regions to facilitate growth, ranging from national distributors to direct sales models. It aims for double-digit growth with plans to expand Badshah into new markets and introduce regionspecific products. The company emphasizes natural products, celebrity endorsements, and tailored innovations to meet local needs. Additionally, it aims to strengthen its e-commerce presence globally and expand the gross margin by focusing on premiumization and innovative product development.

Valuation and view

* DABUR mitigated the impact of inflationary pressures through disciplined cost control, operational efficiencies, and judicious price increases. With a broader distribution reach (to ~0.12m villages and ~7.9m outlets), increased direct penetration (~1.4m outlets), and extensive presence/categorical leadership in the rural market, DABUR is better positioned to capitalize on the rural consumption trend compared to its peers.

* The operating margin, which has been hovering around the 20% band over the last 8-9 years (unlike its peers that have experienced expansions), also has room for expansion in the medium term.

* With external drivers remaining consistent, we view the recent stock price correction as an opportunity to be constructive on the stock. DABUR is at 16%, 14%, 9%, and 19% discount to HUL, Britannia, Marico, and Colgate, respectively, on FY26E P/E. Once the company’s growth trajectory improves, we expect a rerating potential in the stock. We reiterate a BUY rating on the stock with a TP of INR700 (at 50x P/E on Sep’26).

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