Dabur keeps analysts upbeat on business strategy, stock shows up to 16% upside

The company is focusing on expanding its presence in the existing categories and venturing into adjacent markets like therapeutics, baby care, hair oils, toothpaste, tea and foods.

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An enhanced focus on expanding its presence in the existing categories, venturing into adjacent markets, and widening the margin through premium products seem to have made Dabur an attractive bet in the FMCG space, according to analysts.

The FMCG giant organised the ‘Capital Markets Day’ on September 15 to share its strategy and fresh developments in its business segments.

In a note, brokerage firm Motilal Oswal said that under CEO Mohit Malhotra’s leadership since FY19, Dabur has taken several strategic initiatives, which have improved its performance and deepened the portfolio penetration to 76 percent in FY23 from 69 percent in FY19. Its sales averaged 7.8 percent annual growth over FY19-23 as against 2.2 percent over FY15-19.

Dabur derives 75 percent of its revenue from the domestic market and 25 percent from exports.

“The company is focusing on expanding its presence in the existing categories and venturing into adjacent markets like therapeutics, baby care, hair oils, toothpaste, tea and foods. Dabur invests in media to bolster brand strength and boost secondary sales to achieve its target of double-digit sales growth in constant currency terms for international business and a 300 bps gross margin expansion through premiumization, innovation and cost control,” it added.

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Motilal Oswal reiterated its ‘buy’ call on Dabur with a target price of Rs 660, which represents an upside of around 16 percent from its current level.

At 10.10 am, shares of Dabur were trading 0.34 percent up at Rs 567.05 on the BSE.

Growth drivers

Domestic brokerage firm Prabhudas Lilladher said inflationary headwinds have largely come off and Dabur is looking at increasing its ad-spends to support brands.

“Recovery in rural markets is a key to accelerate sales growth, as this segment reaps 50 percent of revenues. We believe scalable opportunities in Badshah, Beverages, new launches like baby care and brand extensions hold key to medium term growth,” it noted.

Focus on cost reductions through higher freight optimisation, lower distance to market, multiple vendors for raw material/cartons, etc will help remove costs from the system and improve profitability, it added. Prabhudas Lilladher has a target price of Rs 600 for the stock.

Foreign brokerage firm Morgan Stanley said Dabur aspires to drive double-digit domestic revenue growth and looks to maintain over 20 percent EBITDA margin from FY25 and 19.5 percent margin in FY24. The brokerage has an ‘overweight’ rating on the stock, with a target price of Rs 600.

CLSA said the key positives for the company include increase in total addressable market and focus on growth. Its healthcare business will focus on a revamped strategy of doctor advocacy. Dabur’s food and beverage segment growth will be driven by portfolio and distribution expansion, it added. CLSA has an ‘outperform’ rating on Dabur, with target price at Rs 620.

Last month, Dabur India reported a consolidated net profit of Rs 456.61 crore for the first quarter of FY24, registering a growth of 3.52 percent from Rs 441.06 crore in the year-ago quarter.

The company’s profit was 55.9 percent higher from Rs 292.76 crore in the previous quarter. Revenue came in at Rs 3,130.47 crore, up 10.91 percent from Rs 2,822.43 crore in the year-ago quarter. Sequentially, the revenue increased 16.9 percent.

Shares of the company are almost flat on a year-to-date basis, while the 1-year return stands at 3 percent.

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