Dabur’s Business Strategy Spurs Optimism Among Analysts, Stock Shows Up to 16% Upside Potential

Dabur, a prominent player in the FMCG sector, has garnered favorable attention from analysts due to its strategic initiatives aimed at expanding its market presence, exploring adjacent markets, and enhancing margins through premium products.

The FMCG giant recently conducted its ‘Capital Markets Day’ on September 15, during which it shared insights into its business strategies and recent developments across various segments.

Motilal Oswal, a leading brokerage firm, highlighted the positive impact of CEO Mohit Malhotra’s leadership since FY19, which has seen Dabur embark on several strategic endeavors. These initiatives have not only bolstered performance but also deepened portfolio penetration, reaching an impressive 76 percent in FY23, up from 69 percent in FY19. Furthermore, Dabur’s sales have experienced robust growth, averaging 7.8 percent annually from FY19-23, a significant improvement compared to the 2.2 percent growth seen from FY15-19.

Dabur currently derives 75 percent of its revenue from the domestic market, with the remaining 25 percent coming from exports.

Motilal Oswal emphasized Dabur’s commitment to expanding within existing categories and venturing into adjacent markets, such as therapeutics, baby care, hair oils, toothpaste, tea, and foods. The company is also investing in media to bolster its brand strength and drive secondary sales growth, aiming for double-digit sales growth in constant currency terms for its international business. Additionally, Dabur aims for a 300 basis points gross margin expansion through premiumization, innovation, and cost control.

Motilal Oswal reaffirmed its ‘buy’ recommendation for Dabur, setting a target price of Rs 660, indicating an impressive potential upside of around 16 percent from its current valuation.

As of 10:10 AM, Dabur’s shares were trading at Rs 567.05 on the BSE, showing a modest 0.34 percent increase.

Driving Factors for Growth

Domestic brokerage firm Prabhudas Lilladher noted that inflationary pressures have eased, allowing Dabur to allocate more resources to advertising and brand support. The recovery of rural markets, responsible for 50 percent of the company’s revenues, is seen as a critical factor in accelerating sales growth. Prabhudas Lilladher also highlighted the growth potential in Dabur’s Badshah, Beverages, and new baby care segments, as well as brand extensions.

Additionally, the focus on cost reduction through optimized freight management, shorter distances to market, and multiple vendors for raw materials and cartons is expected to enhance profitability. Prabhudas Lilladher has set a target price of Rs 600 for Dabur’s stock.

Foreign brokerage firm Morgan Stanley expressed confidence in Dabur’s aspirations for double-digit domestic revenue growth. The company aims to maintain an EBITDA margin of over 20 percent from FY25 onwards, with a target margin of 19.5 percent in FY24. Morgan Stanley maintains an ‘overweight’ rating on the stock, with a target price of Rs 600.

CLSA, another brokerage firm, highlighted key positive factors for Dabur, including an increase in the total addressable market and a strong focus on growth. The healthcare business is adopting a revamped strategy of doctor advocacy, while the food and beverage segment’s growth will be driven by portfolio expansion and improved distribution. CLSA maintains an ‘outperform’ rating on Dabur, with a target price of Rs 620.

In the previous month, Dabur India reported a consolidated net profit of Rs 456.61 crore for the first quarter of FY24, marking a 3.52 percent growth compared to the year-ago quarter. The company’s profit also witnessed a substantial 55.9 percent increase from the previous quarter, reaching Rs 292.76 crore. Additionally, Dabur’s revenue for the quarter stood at Rs 3,130.47 crore, reflecting a 10.91 percent increase compared to the same period in the previous year and a notable 16.9 percent sequential growth.

While Dabur’s shares have remained relatively stable on a year-to-date basis, with minimal fluctuations, its one-year return currently stands at a respectable 3 percent.

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