Buy Dabur India, target Rs 470: ICICI Direct

ICICI Securities has given a buy rating to Dabur India with a target price of Rs 470 and a stop loss of Rs 375 over next six months, factoring in an upside of 17 per cent. The recent correction of 25 per cent from an all time high (Rs 525) provides bargain buy opportunity as it is forming a base around the major long term demand line, offering fresh entry opportunity with a favourable risk reward set up.

Dabur India with a turnover of more than Rs 8,500 crore and earnings of more than Rs 1,400 crore has a strong portfolio of brands (Dabur Chyawanprash, Real, Hajmola, Vatika, Amla, Fem, Honey, Meswak, Dabur Red) with a focus on ayurvedic & healthcare offerings. According to the brokerage, with the wave of demand for ayurvedic & natural products in addition to Coronavirus outbreak globally, the staples segment including Dabur has been gaining significance.

The share price of the company moved up by 1.90 per cent from its previous close of Rs 425.95. The last traded price is 434. Incorporated in 1975, Dabur India has a market cap of Rs 75347.60 crore.



Investment Rationale

The brokerage says that on the back of an improved product mix and robust volume growth, there has been a significant improvement in operating margins from erstwhile 16 per cent margins in FY14 & FY15 to ~20 per cent+ margins levels in FY18 and FY19 respectively.

Dabur’s innovation success rate has been low over the past three years. As the company looks to invest disproportionately in power brands and innovate/renovate to plug portfolio gaps within its categories, the brokerage says the current strategy has a higher chance of delivering successes that will aid volume growth. A volume growth of 6 per cent each is expected in FY20E & FY21E and 7 per cent in FY22E.
Given the strong earnings growth and current volatile market conditions, ICICI Securities says defensive stocks would continue to command premium valuation multiples.

Dabur’s broad product portfolio provides a good play on Indian consumer goods spend by its strong presence in less penetrated and high growth categories. Rural segment contributes around 45 per cent of its overall sales and therefore, it is well placed to take advantage of the rural recovery.

Financials
For the quarter ended December 12, 2019, the company reported consolidated sales of Rs 2352.97 crore, up 6.37 per cent from last quarter sales of Rs 2211.97 crore and up 6.99 per cent from last year same quarter sales of Rs 2199.21 crore. The company reported net profit after tax of Rs 399.02 crore in latest quarter.