Dabur: Upgrading to NEUTRAL, lifting PT by 11%:: Nomura

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􀁾 Action
We are moving our rating for Dabur India to NEUTRAL, from Reduce, with recent
stock underperformance, a roll-over in price target basis to FY12F, and earnings
upgrades to our FY12F numbers indicating the stock is now fairly valued. On our
forecasts, Dabur offers strong earnings growth of 21% over FY10-12F; we would
wait for a better entry point.
􀁡Catalysts
While we are already building in 21% EPS growth over FY10-12F, any margin
improvement in 2H could push our earnings and PT higher.
Anchor themes
Dabur is a well-diversified mid-cap FMCG company with interests across various
categories, from oral care to hair care and foods. Over the medium term, we see
Dabur continuing to strengthen its presence across various FMCG categories and
growing in line with the industry average.


Wait for a better entry point
􀁣 Upgrading to NEUTRAL, lifting PT by 11%
We are moving our rating on Dabur to NEUTRAL, from Reduce, as
we believe recent underperformance, a roll-over of our price target
basis to FY12F, and earnings upgrades to our FY12F numbers means
the stock is fairly valued at current levels. Our PT rises by 11% to
Rs107.
􀁤 Strong revenue growth momentum
The company has consistently delivered average 21% y-y top-line
growth over the past seven quarters, and we expect this top-line
momentum to continue into FY12F. We raise our FY12F revenue
growth target to 16%, from 14%, as we believe we now have more
clarity on FY12F following management feedback. This drives our
earnings upgrade for FY12F, as well as some margin improvement.

􀁥 2Q FY11 results show continued strong performance
2Q FY11 numbers were marginally higher than our estimates on
account of better-than-expected operating margins. Net income
was 4% higher than our estimate, at Rs1.6bn vs our estimate of
Rs1.54bn.
􀁦 Stock has underperformed FMCG index
Since 1Q FY11 results in late July, the stock is up 2.9%, against a
13.1% increase in the FMCG Index (largely on the back of HUL, which
has outperformed the index).
􀁧 Not inexpensive; look for better entry point
We believe this underperformance, roll-over to an FY12F-based price
target and our 4% FY12F earnings upgrade make the stock fairly
valued. Our valuation methodology is unchanged at 25x FY12F P/E.