Reduce Dabur India Ltd For Target Rs. 525 By Emkay Global Financial Services Ltd
We met the management, including Mohit Malhotra (CEO) and Ankush Jain (CFO), to understand Dabur’s execution strategy amid GST benefits supporting demand recovery. The government’s interventions are expected to bolster consumption, particularly in the urban middle-income segment. ~70% of Dabur’s portfolio benefits from the reduction in GST, with the effective rate decreasing from 14% to 7% in India. Dabur is aligning its offerings in accordance with evolving consumer preferences in the ‘naturals’ segment. Market-share gains from its efforts are expected to translate to stronger growth ahead. Though we consider the stock to be fairly valued, we await acceleration in Dabur’s growth. Thus, we retain REDUCE with a Sep-26E TP of Rs525, on 40x P/E. GST-related trade destocking may impact primary sales and margins in Q2.
GST boost to address slowdown in the urban middle-income segment
The management is seeing a series of interventions from the Central government aimed at easing pressure on the middle class, a key consumption segment driving economic growth. The premium urban segment continues to perform well, with consumers willing to pay a premium for differentiated offerings. Growth in this segment has been primarily driven by modern trade and e-commerce channels. However, with the recent surge in quick commerce, growth in modern trade has moderated. Meanwhile, rural demand remains steady and is expected to continue ahead.
‘Naturals’ now has three areas; Dabur is actively participating in all three
The management has identified three areas in the ‘naturals’ segment: ‘No nasty’ products, herbal offerings, and Ayurveda-focused items. The youth is increasingly seeking products that are free from harmful substances such as lead, ammonia, and sulfates. The herbal category resonates with the urban middle class, prioritizing ingredients like tulsi, ashwagandha, and basil. Ayurveda holds strong relevance in rural and semi-urban regions, reflecting local preferences and the use of traditional ingredients. Dabur maintains a strong presence in all three areas through its extensive product portfolio, effectively meeting diverse consumer needs. The segment has also seen a resurgence of new-age brands (many of which are positioned at the premium end of the market). The company expanded into A2 Ghee recently, following the successful launch of edible oils. It is increasingly validating new product concepts with Gen-Z consumer panels before introducing them in the market.
The broad branded portfolio is an enabler, as it aligns with the youth’s needs
Given the company’s broad branded portfolio, which enhances its outlook in a market where building new brands is increasingly challenging, the management believes that ongoing initiatives will drive category growth. Dabur has sustained market share gains in HPC, while beverages are seeing a seasonal impact
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