Dabur (DABUR IN, INR 125, Buy)
Dabur’s renewed aggression in ad spend, focus on innovation (we expect new launches to pick pace in H2FY13), and doubling of direct rural reach enthuse us. We expect these factors to trigger double digit volume growth over coming quarters. Shampoo margin is likely to expand as promotional expenses in the space have reduced, though monsoon deficit could increase raw material costs. Dabur recently earned the distinction of being the only Indian company to make it to ‘WWD Beauty Inc.'s Top 100 2012’ (ranked 53rd, up nine places YoY). Maintain ‘BUY’.
Aggressive rural expansion to be growth catalyst
We expect Dabur’s domestic business to clock double digit volume growth in FY13E (8.6%, 5.0%, 8.0%, 9.5%, and 11.6% YoY in Q1FY12, Q2FY12, Q3FY12, Q4FY12, and Q1FY13, respectively) as it is aggressively expanding direct rural reach from 14,000 to 28,000 villages in 10 states (90% of which is likely to be achieved by Q2FY13 end; full results of this expansion to be visible in H2FY13). This will widen the reach especially of juices, health, and skin care categories. Monsoon deficit is likely to put pressure on raw material costs, which may warrant higher-than-planned (4-5% YoY) price hike.
Innovation to pick up pace in H2FY13
We expect Dabur to step-up aggression in new launches in H2FY13 with special emphasis on hair care, oral care, and skin care. The company has recently relaunched its Amla hair oil in a new youthful modern look and new positioning of Mazbooti bhi, Khubsoorti bhi,roping in Priyanka Chopra as the brand ambassador. Most international business segments have been doing well with new factories coming up in Bangladesh and Sri Lanka. We expect Dabur to step up its efforts in the Pakistan market where it clocked INR259mn in FY12 (22% YoY growth) led by Hajmola and Amla brands.
Outlook and valuations: Growing strong; maintain ‘BUY’
We like Dabur’s herbal positioning and aggression and expect recent re-rating of stock to sustain. The stock is trading at P/E of 28.8x and 23.9x on FY13E and FY14E, respectively. We maintain ‘BUY’ and rate the stock ‘Sector Outperformer’ on relative return basis.
Regards,
No comments:
Post a Comment