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Dabur India (DABU.BO, Rs90.50, OW, PT Rs115)
Investment Thesis: Why OW
• Dabur seems to have carved out a niche for itself in the
herbal/natural/ayurvedic products space, which may not
be directly affected by increased competitive activity.
• Growth paradigm for cash cow categories seems to be
changing with a step up in growth in F11 which is not only
driving overall growth but also funding growth plans for
other categories.
• Better placed to manage input cost and competitive
pressures vs. peers.
Dabur Has a Balanced Product Portfolio
We believe Dabur is an attractive investment proposition in
consumer staples, considering its higher visibility in revenue
and earnings growth. Dabur has the ability to launch highly
differentiated product offerings across its product portfolio
positioned in the ayurvedic/natural/herbal niche, which will
means that competitive activity will likely be relatively low for
Dabur’s products.
Dabur has an interesting mix of cash-cow and high-growth
product categories. We expect the company to report F10-F13e
earnings CAGR of 20%, among the highest in the industry.
Dabur is likely to face continuing cost and competitive pressures
in certain categories, affecting overall margins. However, given
Dabur’s multiple growth engines positioned in the ANH niche, we
believe the company is best positioned to combat cost and
competitive pressures relative to peers.
Key concern: Is It Spreading Itself Too Thin?
We believe that Dabur continue to be disciplined in their
approach to diversification by acquisitions only in categories
or geographies catering to their core strengths. This focus was
once again exhibited in their recent acquisition in the organic
hair care space with a product portfolio targeted at the ethnic
population with a presence in Africa. They have also adopted
the strategy of retaining experienced management teams of
the acquired companies to run those business to avoid the
core management team from spreading itself too thin.
However, we believe that Dabur would do well to now
consolidate its portfolio before moving ahead.
Nonetheless, considering that the company is largely focused
on a mass-market portfolio, its brand extension may not impede
growth. Taking a longer-term view, Dabur is building up scale
and has first mover advantage amongst domestic FMCG
companies in the attractive African & Middle East markets.
Investment Positives
Well-balanced diversified portfolio catering to both rural
and urban markets
Niche position in the herbal/ayurvedic/natural space
Investment Concerns
Risk of managing a fragmented portfolio with a number of
small brands and product categories;
Growth in dominant cash-cow categories may slow due to
relative underinvestment as Dabur has focused on
funding its newer businesses;
F3Q11 – Steady Growth: Dabur reported consolidated
revenue, operating profit and adjusted PAT growth of 17%,
21% and 11%, respectively – this compares with our
expectation of 20%, 18% and 16% growth respectively.
Domestic business showed revenues, operating profit and
PAT growth of 13%, 14% and 5% respectively. Key highlights:
1) Overall ad spending down 210bps offset cost inflation –
highlighting higher flexibility to control costs vs. other
HPC companies in India
2) International business same currency growth of 19% in
Q3 - operating margins expanded by 900bps
3) Cash cow businesses that leverage Dabur’s strength on
the ANH platform grew by ~12%
4) Higher depreciation and tax expense constrict earnings
growth during the quarter.
Investment Thesis
• Dabur seems to have carved out a
niche for itself in the herbal/natural/
ayurvedic products space, which may
not be directly affected by increased
competitive activity.
• Some of the Cash cow / growth
engines are inflecting.
• Dabur is now trading at 21x F12e
earnings vs. MS India consumer
average of 22.4x. This discount in
our view is unwarranted considering
its higher visibility in revenue growth.
Key Value Drivers
• Ability to fuel growth in its cash-cow
categories
• Appropriate investment in and
successful building of growth
categories
• Successful integration of its recent
acquisitions and new acquisitions
Potential Catalysts
• Successful launch of differentiated
products in skincare and Healthcare
• Continued growth in cash-cow
categories
Key downside risks
• Significant rise in cost pressures
• Failure to integrate recently
acquisitions
• Large value-destroying acquisition
• Failure to develop differentiated
products
• Predatory price competition
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dabur India (DABU.BO, Rs90.50, OW, PT Rs115)
Investment Thesis: Why OW
• Dabur seems to have carved out a niche for itself in the
herbal/natural/ayurvedic products space, which may not
be directly affected by increased competitive activity.
• Growth paradigm for cash cow categories seems to be
changing with a step up in growth in F11 which is not only
driving overall growth but also funding growth plans for
other categories.
• Better placed to manage input cost and competitive
pressures vs. peers.
Dabur Has a Balanced Product Portfolio
We believe Dabur is an attractive investment proposition in
consumer staples, considering its higher visibility in revenue
and earnings growth. Dabur has the ability to launch highly
differentiated product offerings across its product portfolio
positioned in the ayurvedic/natural/herbal niche, which will
means that competitive activity will likely be relatively low for
Dabur’s products.
Dabur has an interesting mix of cash-cow and high-growth
product categories. We expect the company to report F10-F13e
earnings CAGR of 20%, among the highest in the industry.
Dabur is likely to face continuing cost and competitive pressures
in certain categories, affecting overall margins. However, given
Dabur’s multiple growth engines positioned in the ANH niche, we
believe the company is best positioned to combat cost and
competitive pressures relative to peers.
Key concern: Is It Spreading Itself Too Thin?
We believe that Dabur continue to be disciplined in their
approach to diversification by acquisitions only in categories
or geographies catering to their core strengths. This focus was
once again exhibited in their recent acquisition in the organic
hair care space with a product portfolio targeted at the ethnic
population with a presence in Africa. They have also adopted
the strategy of retaining experienced management teams of
the acquired companies to run those business to avoid the
core management team from spreading itself too thin.
However, we believe that Dabur would do well to now
consolidate its portfolio before moving ahead.
Nonetheless, considering that the company is largely focused
on a mass-market portfolio, its brand extension may not impede
growth. Taking a longer-term view, Dabur is building up scale
and has first mover advantage amongst domestic FMCG
companies in the attractive African & Middle East markets.
Investment Positives
Well-balanced diversified portfolio catering to both rural
and urban markets
Niche position in the herbal/ayurvedic/natural space
Investment Concerns
Risk of managing a fragmented portfolio with a number of
small brands and product categories;
Growth in dominant cash-cow categories may slow due to
relative underinvestment as Dabur has focused on
funding its newer businesses;
F3Q11 – Steady Growth: Dabur reported consolidated
revenue, operating profit and adjusted PAT growth of 17%,
21% and 11%, respectively – this compares with our
expectation of 20%, 18% and 16% growth respectively.
Domestic business showed revenues, operating profit and
PAT growth of 13%, 14% and 5% respectively. Key highlights:
1) Overall ad spending down 210bps offset cost inflation –
highlighting higher flexibility to control costs vs. other
HPC companies in India
2) International business same currency growth of 19% in
Q3 - operating margins expanded by 900bps
3) Cash cow businesses that leverage Dabur’s strength on
the ANH platform grew by ~12%
4) Higher depreciation and tax expense constrict earnings
growth during the quarter.
Investment Thesis
• Dabur seems to have carved out a
niche for itself in the herbal/natural/
ayurvedic products space, which may
not be directly affected by increased
competitive activity.
• Some of the Cash cow / growth
engines are inflecting.
• Dabur is now trading at 21x F12e
earnings vs. MS India consumer
average of 22.4x. This discount in
our view is unwarranted considering
its higher visibility in revenue growth.
Key Value Drivers
• Ability to fuel growth in its cash-cow
categories
• Appropriate investment in and
successful building of growth
categories
• Successful integration of its recent
acquisitions and new acquisitions
Potential Catalysts
• Successful launch of differentiated
products in skincare and Healthcare
• Continued growth in cash-cow
categories
Key downside risks
• Significant rise in cost pressures
• Failure to integrate recently
acquisitions
• Large value-destroying acquisition
• Failure to develop differentiated
products
• Predatory price competition
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