Dabur India Rating: Buy- Multiple positive levers are in place

Among our top ‘BUY’ recommendations, Dabur delivered a 16.1% return in CY20 (23.6% from 1 Apr’20). In CY21 too, Dabur would remain a strong volume growth story considering: (i) addition of new consumers to Health portfolio in the wake of the pandemic; (ii) worst is behind for Fruit Juices and other segments impacted by the lockdown; and (iii) an impressive innovation funnel (PET bottle juices, health drops, health juices, Amla-plus juices, pickles and apple cider vinegar are doing well). Given the positive structural levers coming in place for the company, we revise up our target multiple to 55x (from 50x) and arrive at a revised TP of Rs 665. Maintain Buy.

New CEO’s focus on market share visible
We continue to appreciate new CEO Mohit Malhotra’s focus on: (i) gaining market share rather than expanding margins as the top priority; and (ii) strengthening Dabur’s equity as India’s premier Ayurveda consumer company. Dabur has logged share expansion across many segments: toothpaste (37bps), hair oils (44bps), Chyawanprash (325bps), juices & nectars (324bps), glucose (94bps), shampoo (43bps), digestive tablets (288bps) and bleaches (125bps). We expect benefits from market share improvement to aid profitability over the long run.

Healthcare would continue to do well but Q2 unlikely to recur
Higher focus on health among consumers in the wake of the pandemic lifted Chyawanprash’s penetration from 2% to ~4%. In health supplements, penetration is about 10% in India compared with 80% in developed countries. Dabur is working on LUP format packaging for Chyawanprash at lower price points. Honey’s penetration in India remains low at ~25%. More players would expand the overall market, and we don’t expect any long-term impact on Dabur due to entry of new players in Chyawanprash or honey. Ethicals reaches about 100,000 ayurvedic chemist outlets while OTC reaches about 275,000 chemist outlets (up from 245,000 outlets).

Outlook and valuation: Positive
We believe Dabur is well placed to capitalise on consumers’ rising preference for herbal & natural products and e-commerce. Dabur’s e-commerce business surged over 200% y-o-y in Q2FY21 and now makes up 6% versus 2.1% a year ago; it launched e-commerce-specific products such as Dabur Himalayan Apple Cider Vinegar and Dabur Cold Pressed Mustard. Dabur is also a strong rural play (45% revenue share).

Considering the multiple structurally positive levers coming in place, we revise up our target multiple to 55x (from 50x) and maintain ‘BUY/SO’. The stock is trading at 46.1x FY22e EPS.