DABUR IN Equity 18Mar21 CU - Edelweiss

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KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 522 12 month price target (INR) 675 Market cap (INR bn/USD bn) 924/12.7 Free float/Foreign ownership (%) 32.1/18.1

What’s Changed

Target Price ⚊

Rating/Risk Rating ⚊

INVESTMENT METRICS

Growing naturally

We recently met Mr. Mohit Malhotra, CEO of Dabur India, to gain insights into the company’s growth plans, product launches and strategy to counter competition, among others. Highlights: i) The pandemic has brought in new consumers to the health portfolio. ii) The worst is behind for fruit juices and other segments squeezed by the lockdown. iii) Strong focus on innovation (recent launches in PET

bottle juices, health drops, health juices, Amla-plus juices, pickles and apple cider vinegar are all doing well).

We believe Dabur is well placed to capitalise on consumers’ rising preference for herbal and natural products given the environment, and remains a strong rural play. Retain ‘BUY’ with a TP of INR675.

FINANCIALS (INR mn)

Year to March FY20A FY21E FY22E FY23E

Revenue 87.0 97.1 109.3 119.7

EBITDA 17,924 20,676 23,708 25,983

Adjusted profit 15,479 17,946 21,099 23,633

Diluted EPS (INR) 8.7 10.1 11.9 13.3

EPS growth (%) 1.8 15.9 17.6 12.0

RoAE (%) 23.7 25.1 25.7 25.2

P/E (x) 59.9 51.6 43.9 39.2

EV/EBITDA (x) 50.6 43.2 37.3 33.6

Dividend yield (%) 0.3 0.8 0.9 1.0

PRICE PERFORMANCE

Top issues that we delve into

1. Is the worst behind for fruit juices, digestives, air fresheners and mosquito repellents?

2. Dabur has spent much higher than peers in terms of ad intensity. When will this cool off?

3. New players have entered Honey, Chyawanprash, Kadha, etc. How will Dabur, being the dominant leader, protect its turf?

4. Investors are concerned about the inflationary trend in raw materials. What is the outlook for raw materials and margins?

5. Will Dabur’s focus on market share continue? 6. As the fear of the pandemic reduces in the wake of vaccine rollout, what is the

outlook for the healthcare segment? 7. Can the shift to naturals in toothpaste sustain given high base of past few years? 8. Can Dabur’s rural growth derail due to the cut announced in rural subsidies in

the Union Budget? 9. How will modern trade, urban recovery help Dabur? 10. What is the strategy for e-commerce? 11. What is happening on the Power Brands strategy? 12. How is the international portfolio doing in the wake of rising crude oil prices and

covid-19 cases?

Explore:

Outlook and valuation: Positive; maintain ‘BUY’

We envisage Dabur would benefit from growth momentum in rural areas, which

generate about 45% of its total sales (aided by government’s rural push and the

company’s deepening rural reach). The company’s ayurveda-based launches in oral

care, hair care, health supplements, etc to capitalise on changing consumer

preferences should continue to spur its overall growth.

We expect volumes to continue to be robust driven by company-specific strategies

—including rural distribution—and an expanding herbal market. All in all, we retain

‘BUY/SO’ with a TP of INR675. The stock is trading at 43.9x FY22E EPS.

0

15

30

45

Sales Growth(%)

EPS Growth(%)

RoE(%)

PE(x)

Consumer Staples DABUR IN Equity

25,000

30,600

36,200

41,800

47,400

53,000

375

410

445

480

515

550

Mar-20 Jun-20 Sep-20 Dec-20 Mar-21

DABUR IN Equity Sensex

India Equity Research Consumer Staples March 19, 2021

DABUR INDIA COMPANY UPDATE

Abneesh Roy Tushar Sundrani Prateek Barsagade +91 (22) 6620 3141 +91 (22) 6620 3004 +91 (22) 4063 5407 [email protected] [email protected] [email protected]

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DABUR INDIA

Edelweiss Securities Limited

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Financial Statements

Income Statement (INR mn) Year to March FY20A FY21E FY22E FY23E

Total operating income 87,036 97,070 1,09,252 1,19,739

Gross profit 43,434 48,632 54,844 60,109

Employee costs 9,477 10,289 11,144 11,974

Other expenses 9,533 9,416 10,160 11,136

EBITDA 17,924 20,676 23,708 25,983

Depreciation 2,205 2,238 2,374 2,548

Less: Interest expense 495 501 492 337

Add: Other income 3,053 3,250 4,068 4,803

Profit before tax 17,277 21,188 24,911 27,902

Prov for tax 2,797 3,242 3,811 4,269

Less: Other adj 0 0 0 0

Reported profit 14,479 17,946 21,099 23,633

Less: Excp.item (net) (1,000) 0 0 0

Adjusted profit 15,479 17,946 21,099 23,633

Diluted shares o/s 1,773 1,773 1,773 1,773

Adjusted diluted EPS 9 10 12 13

DPS (INR) 1.6 4.1 4.8 5.3

Tax rate (%) 16.2 15.3 15.3 15.3

Important Ratios (%) Year to March FY20A FY21E FY22E FY23E

Gross margin (%) 49.9 50.1 50.2 50.2

Staff cost (% of rev) 10.9 10.6 10.2 10.0

A&P as % of sales 7.5 8.5 9.0 9.2

EBITDA margin (%) 20.6 21.3 21.7 21.7

Net profit margin (%) 17.8 18.5 19.3 19.7

Rev growth (% YoY) 2.0 11.5 12.5 9.6

EBITDA growth (% YoY) 3.0 15.4 14.7 9.6

Adj. profit growth (%) 1.9 15.9 17.6 12.0

Assumptions (%) Year to March FY20A FY21E FY22E FY23E

GDP (YoY %) 4.8 (6.0) 7.0 6.0

Repo rate (%) 4.4 3.5 3.5 4.0

USD/INR (average) 70.7 75.0 73.0 72.0

Dom Vol growth 1.1 10.0 12.0 8.0

Int bus growth 5.0 1.4 10.0 10.0

COGS % of sales (std) 17.0 17.4 17.4 17.4

Other exp (% of rev) 11.0 9.7 9.3 9.3

Dep (% of gross block) 6.3 5.9 5.8 5.8

Yield on cash 8.5 9.0 8.5 8.5

Valuation Metrics Year to March FY20A FY21E FY22E FY23E

Diluted P/E (x) 59.9 51.6 43.9 39.2

Price/BV (x) 14.0 12.1 10.6 9.3

EV/EBITDA (x) 50.6 43.2 37.3 33.6

Dividend yield (%) 0.3 0.8 0.9 1.0

Source: Company and Edelweiss estimates

Balance Sheet (INR mn) Year to March FY20A FY21E FY22E FY23E

Share capital 1,767 1,767 1,767 1,767

Reserves 64,290 74,913 85,838 98,075

Shareholders funds 66,058 76,680 87,605 99,842

Minority interest 365 365 365 365

Borrowings 4,671 3,671 2,671 1,671

Trade payables 14,822 15,925 17,887 19,604

Other liabs & prov 6,996 6,996 6,996 6,996

Total liabilities 93,540 1,04,266 1,16,154 1,29,107

Net block 18,728 19,490 20,116 20,568

Intangible assets 3,802 3,802 3,802 3,802

Capital WIP 1,466 500 500 500

Total fixed assets 23,995 23,792 24,417 24,869

Non current inv 14,092 14,092 14,092 14,092

Cash/cash equivalent 22,024 33,772 42,413 52,636

Sundry debtors 8,139 7,978 8,980 9,842

Loans & advances 377 377 377 377

Other assets 18,506 17,849 19,468 20,884

Total assets 93,540 1,04,266 1,16,154 1,29,107

Free Cash Flow (INR mn) Year to March FY20A FY21E FY22E FY23E

Reported profit 14,479 17,946 21,099 23,633

Add: Depreciation 2,205 2,238 2,374 2,548

Interest (net of tax) 495 501 492 337

Others (1,370) 0 0 0

Less: Changes in WC 326 1,922 (658) (561)

Operating cash flow 16,136 22,606 23,307 25,956

Less: Capex (5,043) (2,034) (3,000) (3,000)

Free cash flow 11,093 20,572 20,307 22,956

Key Ratios Year to March FY20A FY21E FY22E FY23E

RoE (%) 23.7 25.1 25.7 25.2

RoCE (%) 27.9 28.6 29.6 29.3

Inventory days 112 101 94 95

Receivable days 35 30 28 29

Payable days 123 116 113 115

Working cap (% sales) 6.2 3.6 3.8 3.9

Gross debt/equity (x) 0.1 0 0 0

Net debt/equity (x) (0.3) (0.4) (0.5) (0.5)

Interest coverage (x) 31.7 36.8 43.4 69.6

Valuation Drivers Year to March FY20A FY21E FY22E FY23E

EPS growth (%) 1.8 15.9 17.6 12.0

RoE (%) 23.7 25.1 25.7 25.2

EBITDA growth (%) 3.0 15.4 14.7 9.6

Payout ratio (%) 19.5 40.0 40.0 40.0


DABUR INDIA

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Top issues that we delve into

1) Is the worst behind for fruit juices, digestives, air fresheners and

mosquito repellents?

Growth should be robust in the juices business going ahead. The Juices business,

excluding Enterprise (HORECA, FS and CSD), grew ~8% YoY in Q3FY21. Structural

issues are behind. The INR10 price point is doing very well. PET bottle has also

done well. Market share of Real increased by 20bps. Activ Coconut Water

reported strong double-digit growth. Recent launches of Real Mango Drink in

PET, Dabur Amla Plus and Real Frappe showed good traction. Hommade brand

performed well driven by increased cooking at home. Excluding the HORECA

business, the Culinary business recorded growth of 43% YoY. Recent launches

such as chutneys and pickles added to the growth momentum.

Real Low Cal juices were launched—first of its kind. Juices will trend back to

growth trajectory and should get back on double-digit growth trajectory. The

INR10 price point that Dabur rolled out in Koolerz and Apple Mini have done

exceedingly well and the foray into the PET bottle has been also received very

well in the marketplace.

The Homemade brand performed well driven by increased cooking at home.

Excluding the HORECA business, the culinary business recorded growth of 46%

YoY. Recent launches such as chutneys and pickles added to the growth

momentum.

The Hajmola portfolio was impacted due to restricted outdoor activity, minimal

outside food consumption and closures of restaurants (though now seeing

sequential improvement). Being discretionary, the air freshener category was

impacted over the past nine months. However, Odonil’s market share improved

by 60bps YoY. Mosquito repellent creams too posted a decline, but Odomos’s

market share increased by 80bps YoY. In these segments, we expect the worst

to have blown over and growth to come back soon.

Real Milkshake portfolio

Source: Company, Edelweiss Research

Mr. Mohit Malhotra,

CEO, Dabur

DABUR INDIA



Real brand communication

Source: Company

2) Dabur has spent much higher than peers in terms of ad intensity.

When will this cool off?

For the past two quarters, Dabur has been aggressive on its Ad Intensity in India.

Ad spends will normalise from Q4FY21. Didn’t necessarily spend A&P on NPDs

as they had intrinsic demand. Core brands got most of the A&P.

Dabur’s quarterly A&P trend

Source: Company

Dabur’s annual A&P trend

Source: Company

2.0

4.0

6.0

8.0

10.0

12.0

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

Q1

FY2

1

Q2

FY2

1

Q3

FY2

1

(%)

2.0

4.0

6.0

8.0

10.0

12.0

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0

(%)


DABUR INDIA


3) New players have entered Honey, Chyawanprash, Kadha, etc.

How will Dabur, being the dominant leader, protect its turf?

Dabur has been driving innovation lately and expanded the honey portfolio with

introduction of e-commerce-first launches such as Himalayan Forest Honey and

Organic Honey. In Chyawanprash, Dabur has increased market share by 120bp

to 60%-plus. Penetration of Chyawanprash in the country has also gone up to

beyond 6%. Chyawanprash, as a category, should get a big boost and it has also

benefits from an advisory by the government for its immunity-boosting efficacy.

Honey penetration is ~25% in India. This pie may contract because people will

not have as many medicines as they used to have during the covid-19 times, and

honey is used as an adjuvant to increase efficacy in medicine. Dabur is launching

huge innovations, and the category is also becoming significantly competitive,

and on the back of competition increasing share of voice. As the share of voice

increases, more and more consumers will get in.

Dabur has increased market share by 700bp in honey—whether it is e-

commerce or modern trade or general trade—and has again become number

one in e-commerce. The company will be working on a trajectory to increase

market share and strengthen its existing brands by launching premiumized

variants. Hence, Organic honey, Forest honey, Ashwagandha honey and Tulsi

honey have been rolled out in GT as well.

As far as the German test is concerned, Dabur abides by the law of the land,

which is the FSSAI standards. Indian honey is collected from Indian beekeepers,

who collect honey from 20,000 varieties of flowers grown in India, and not

grown in Germany. The FSSAI, in their clarification to the CSE report, has clearly

stated that the FSSAI has the most stringent standards in the whole world and

NMR is nowhere insofar as standards are concerned in the world; even in

Germany, that is not a standard because it does not have a robust database.

Dabur’s honey communication

Source: Company

DABUR INDIA



4) Investors are concerned about the inflationary trend in raw

materials. What is the outlook for raw materials and margins?

Raw material prices are firming up as agri and crude-linked prices are trending

up. Raw materials such as LLP, palm oil, copra and edible oils have risen sharply.

Since price hikes have been quite limited over the past two years, Dabur has

room to raise prices this year.

The company will take calibrated price hikes to combat inflation. It will balance

cost increase through a combination of price hikes, reduced promotions and

cost optimisation. Healthcare contribution will keep increasing, which will aid

the mix. Cost savings of INR500mn accrued this year and another INR1bn in

savings should come through next year. The company is working with a third-

party consultant as well.

Dabur’s quarterly margin trend

Source: Company

Dabur’s annual margin trend

Source: Company

10.0

20.0

30.0

40.0

50.0

60.0

Q4

FY1

7

Q1

FY1

8

Q2

FY1

8

Q3

FY1

8

Q4

FY1

8

Q1

FY1

9

Q2

FY1

9

Q3

FY1

9

Q4

FY1

9

Q1

FY2

0

Q2

FY2

0

Q3

FY2

0

Q4

FY2

0

Q1

FY2

1

Q2

FY2

1

Q3

FY2

1

(%)

Gross margin (%) EBITDA margin (%)

10.0

20.0

30.0

40.0

50.0

60.0

FY16 FY17 FY18 FY19 FY20

(%)

Gross margin (%) EBITDA margin (%)


DABUR INDIA


Raw materials’ tracker

Name of the Commodity YoY (%) QoQ (%)

Palm Oil 42.9 13.6

PFAD 36.9 17.9

Copra 23.9 4.9

Wheat (13.0) 6.3

Brent 13.3 28.2

Mentha (16.6) 1.8

Soda Ash (24.2) (1.6)

Vinyl Acetate 66.5 53.0

Gold 19.0 (1.2)

India WPI rectified spirit 0.1 (0.4)

Source: Bloomberg, Edelweiss Research

5) Will Dabur’s focus on market share continue?

Dabur is focussed on gaining market share rather than expanding margins as the

top priority, not to mention the renewed focus on bolstering its brand equity as

India’s premier Ayurveda consumer company.

Market share increased by ~120bp in the Chyawanprash category, ~700bp in

the honey, and ~120bp in toothpaste.

Perfumed oils and coco oils portfolios reported double-digit growth. Market

share improved by ~20bp. Market share in the shampoo category increased by

~50bp to 6.5%. Bottle saliency is 15% of the shampoo business. Odonil’s market

share improved by ~210bp. Odomos’s market share rose by ~250bp. Market

share of Real increased by 20bp.

Market share improvement visible across categories

Source: Company

0

80

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400

Glu

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Sham

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aste

Dig

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MR

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Ch

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(bp

s)

MAT Mar'20 vs Mar'19 - Increase in volume share

DABUR INDIA



6) As the fear of the pandemic reduces due to vaccines, what is the

outlook for the healthcare segment?

Sharper focus on health by consumers in the wake of the pandemic lifted

Chyawanprash penetration from 2% to ~6%. In Q3FY21, Healthcare grew 28.1%

YoY with strong growth on the back of robust double-digit growth of Dabur

Chyawanprash and Dabur Honey. Market share in the Chyawanprash category

increased by ~120bp. Market share in Honey category increased by ~700bp.

Honey penetration is 25%.

Exponential growth in Honey and Chyawanprash, but growth in honey would

come off as vaccine picks up. However, the company will endeavour for growth

to continue.

Launches in Honey are aimed at providing more value-added products. Honey

is an INR15bn market size. The Chyawanprash category is about INR10bn. Dabur

did not see an significant fallout from the Honey controversy. An Ayurvedic

study with the Ministry of Ayush corroborates Chyawanprash immunity-

boosting properties.

Health supplements’ penetration is about 10% in India compared with 80% in

developed countries. The company is working on LUP formats for Chywanprash.

Honey’s penetration in India remains low at ~25%. More players will expand the

overall market. The Immunity@Doorstep initiative entered phase 4 with an

addition of ten cities. It has already reached 5mn+ consumers across 32 towns.

Ethicals reaches about 100,000 ayurvedic chemist outlets while OTC reaches

about 275,000 chemist outlets (up from 245,000 outlets).

Launches

Source: Company


DABUR INDIA


7) Can the shift to naturals in toothpaste sustain in spite of Dabur’s

high base of past few years?

Dabur has consistently grown ahead of industry in toothpastes for the past few

years given the shift towards Naturals. Toothpaste market share for Dabur has

improved by ~120bp YoY in Q3FY21.

The company has a 27–30% share in the overall naturals market. Dabur, clearly,

has a right to win here with a very strong portfolio of Red Toothpaste, Meswak

and Babool. The company has launched Dant Rakshak (which now contributes

INR70mn in revenue) and Dabur Clove (INR10–20mn in revenue), and they have

gained decent traction. Dant Rashak was launched at a lower price to Dabur Red

in the northern belt and is seeing 20–30% repeat purchases.

Red Toothpaste continues to see good demand momentum. The Meswak and

Babool franchises also reported robust double-digit growth. Dabur Red

contributes 70% to the toothpaste business. Rest of brands contribute the

remaining 30%. Dabur Red has grown 30% YoY in Q3FY21. Other portfolio has

grown by 20–25% YoY. The Herbal category growth has benefitted Patanjali and

Dabur. Market share gain is largely from the leader. The company has gained

market share in all of its oral care brands.

Recently, Dabur has launched a Pulling Oil product similar to Colgate, at a higher

price point. It is positioned as an ayurvedic mouthwash and is available at

INR275 (195ml), whereas pulling oil launched by Colgate is priced at INR230

(500ml).

Dabur Herb’l toothpaste range

Source: Company

DABUR INDIA



Dabur Red Pulling Oil

Source: Edelweiss Research

8) Can Dabur’s rural growth derail due to the cut announced in rural

subsidies during the Union Budget?

The government’s focus on infrastructure would lead to job creation (and thus

set in motion higher urban remittances) and higher GDP growth.

On a two-year basis, budgetary allocations for different rural programs remain

healthy. Besides, higher outlay for infra programs will spur urban remittances

and rural economic growth indirectly, which should drive volume growth. State

governments too play a major role in bankrolling rural support schemes.

Skymet has forecast a normal monsoon this year. A good monsoon is a key

driver of the sentiment among rural consumers.

Dabur is expanding direct reach in rural areas, apart from adding more low unit

packs at price points of INR1, INR2, INR5 and INR10.

9) How will modern trade, urban recovery help Dabur?

Dabur gets 55% of its sales from urban areas. Urban FMCG demand is beginning

to improve. MT, which had plunged, is now growing. With malls too now

functional and cinemas permitted to allow 100% of seating in most states (and

big-budget movies slated to hit screens), footfalls should progressively improve

(particularly when new Hindi/regional movies are released). Modern trade

recovery bodes well for discretionary segments aided by activations at stores.

FMCG trend

(%) Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Nominal value growth 15.7 13.4 10 7.5 6.5 3.0 -19.0 1.6 7.3

Value growth (Rural / urban) 1.3 1.2 1.1 0.6 0.7 0.2 NA NA 17.8

Urban growth (%) 14.5 12.7 9.8 8.4 7.4 4.6 -22.2 -7.1 0.8

Rural growth (%) 18.5 15.2 10.3 5.3 5.2 0.9 -13 10.6 14.2

Source: Nielsen


DABUR INDIA


10) What is the strategy for e-commerce?

Dabur’s e-commerce business surged over 150% YoY in Q3FY21, 200% YoY in

Q2FY21 and has salience of 6% versus 2.1% a year ago. B2B ecommerce is also

doing well. E-commerce will structurally keep growing.

Dabur recently launched Vatika Select, a plant-based shampoo range on

Flipkart. The range includes four products: Coconut Milk Extract shampoo,

Moroccan Argan Oil shampoo, Red Onion Black Seed Oil shampoo and Apple

Cider Vinegar shampoo. All the four contain pure and natural botanicals. A

300ml bottle of Dabur Vatika Select shampoo costs INR449. The shampoo is

made of ‘all natural’ active products and has no sulphate, silicone or parabens.

It does not have any additives, which are present in most mainstream hair care

products.

E-commerce-specific launch


DABUR INDIA



To fortify this segment, Dabur launched e-commerce-specific offerings such as

Dabur Himalayan Apple Cider Vinegar and Dabur Cold Pressed Mustard.

Besides, the company has been taking steps in its go-to-market strategy. Now

95% e-commerce business has moved directly towards e-commerce first

launches.

The company will restrict cold pressed mustard oil to e-commerce and then look

at rolling it out to modern trade. E-commerce will help modern trade as modern

trade chains also have online portals.

Dabur's e-commerce portfolio products


Increasing traction on digital platforms


E-commerce contribution

Company Approx. e-commerce channel contribution to sales (%)

Marico 8

Amul 7-8

Dabur 6

HUL 6

GCPL 4.5

Nestle 4


0.0

3.0

6.0

9.0

12.0

15.0

Q1FY20 Q1FY21

(%)

Digital spends (% of ad spends)


DABUR INDIA


11) What is happening on the Power Brands strategy?

Dabur is staying the course on the power brands strategy and driving growth

through investments, innovation and extended distribution reach. In

Chyawanprash, from a structural perspective, unlike say biscuits, structural

advantages should come in handy due to addition of consumers driven by a

surge in penetration in the wake of covid-19 on account of the product’s

immunity benefits. This would help extend Chyawanprash’s usage. Dabur has

been entering adjacent categories through modern formats for youth and kids.

In spite of the recent Honey controversy, we don’t expect long-term impact on

Dabur Honey given its very strong market share and brand equity. This is one

more segment that has benefitted in the wake of covid-19 due to its health and

immunity benefits. Dabur has launched value-added variants and has been

extending the penetration through modern and convenient formats.

In toothpaste, Dabur Red is the fastest growing product in the country. Dabur

has been extending the brand to premium formats. It is growing the rural

franchise through LUPs and connecting digitally with millennials.

12) How is the international portfolio doing in the wake of rising

crude oil prices and covid-19 cases?

Most international markets are doing well. Dabur continues to be the market

leader in key categories across regions. The company’s Middle East business

should recover further given recovery in crude oil prices. Nigeria is also back on

the recovery track.

In order to promote exports, the company has a set up an 100%-owned

subsidiary. Healthcare demand has picked up in a lot of countries. White label

and company’s own brand would be exported across categories.

In Q3FY21, International Business reported growth of 13% YoY (CC growth of

14.1% YoY). MENA saw a turnaround and clocked growth of 11.1% YoY. Egypt

recorded an increase of 9.5% YoY. Hobby had a strong quarter, growing by

33.4% YoY. Namaste business posted 8.2% YoY growth. Nepal business grew by

12.9% YoY and Bangladesh posted growth of 17.4% YoY. Growth is sustainable

DABUR INDIA



Strong position in international markets

International markets and categories Market position

Saudi Arabia

Hair Oil #1

Hair Cream #1

Hair Gel #1

Hair Mask #1

Hair Serums #2

Depilatories #2

Egypt

Hair Oil #1

Hair Cream #1

Hair Mask #1

Hair Gel #2

Hair Serums #3

UAE

Hair Cream #1

Hair Gel #1

Hair Mask #1

Hair Oil #2

Hair Serums #2

Leave-On #3

Depilatories #3

Source: Company

Product launches in MENA region

Source: Company


DABUR INDIA


Product launches in MENA region

Source: Company

Q3FY21 constant currency growth by geography

Source: Company

0.0

7.0

14.0

21.0

28.0

35.0

SSA

Turk

ey

Nam

aste

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DABUR INDIA



13) What is Dabur’s strategy to expand distribution?

Dabur reaches 6.7mn total outlets. Its direct reach has expanded from 1.2mn

outlets to ~1.5mn outlets in three years. Village coverage has expanded from

52.6k to 60k in one–two years. Chemist coverage has expanded from 240,000

outlets in FY20 to 270,000 outlets by end-FY21.

14) Could you give an update on launches given sanitisers is cooling

off?

New product development contribution will stay in the range of 4–5%. YTD, it is

about 6% of sales. Sanitizers did not do well in Q3FY21. Revenue thereof

plunged from INR500–600mn in Q1FY21 to INR20–30mn in Q3FY21. Dabur may

consider discontinuing sanitisers.

Among launches, PET bottle juices, health drops, health juices, Amla-plus juices,

pickles and apple cider vinegar are doing well. The recently launched Home

Hygiene portfolio saw good traction. The company has tried to create a Home

and Hygiene vertical under Dabur Sanitise. It believes the antiseptic market is

under-penetrated, and Dabur has a right to win this category due to its health

and wellness brand equity.


DABUR INDIA


Outlook and valuation: Positive; maintain ‘BUY’

We envisage Dabur would benefit from growth recovery in rural areas, which

generate about 45% of the company’s total sales (aided by reverse migration,

government’s rural push and the company’s deepening rural reach). To capitalise on

changing consumer preferences, Dabur is launching ayurveda-based products in oral

care, hair care, health supplements, etc, which are likely to spur overall growth.

Key strategic initiatives that bolster our optimism are: i) focus on innovation and

improving market leadership; ii) aggressive ad spends; iii) LUP push; and iii)

endeavours to enhance direct distribution (Project Buniyaad). The company has

countered intensifying competition by raising its promotional spending, which has

helped it regain market share. The focus on innovation pipeline, especially in the

natural segment, and premiumising the same will not only help the company gain

share in naturals and Ayurveda, but also aid margin improvement.

The focus on OTC, ethicals health supplements and foods businesses—further

strengthened by Project CORE—will play a key role in driving premiumisation for

Dabur. Project LEAD and rising coverage of doctors will boost healthcare products.

IB is expected to improve off a soft base. In the domestic market, Project Buniyaad

is helping Dabur improve sales traction in rural geographies. Through Project

Samriddhi, the company is projecting cost savings of about INR1.2bn.

In the current environment, we believe Dabur is well placed to capitalise on

consumers’ rising preference for herbal & natural products and e-commerce.

Dabur’s e-commerce business surged over 200% YoY in Q2FY21 and now makes up

6% versus 2.1% a year ago; it launched e-commerce-specific products such as Dabur

Himalayan Apple Cider Vinegar and Dabur Cold Pressed Mustard. Dabur is also a

strong rural play (45% revenue share).

We expect volumes to continue to be robust driven by company-specific strategies,

expansion of the herbal market and strengthening rural distribution. We retain

‘BUY/SO’ with a TP of INR675. The stock is trading at 43.9x FY22E EPS.

DABUR INDIA



Additional Data

Management

CEO Mr. Mohit Malhotra

CFO Mr. Lalit Malik

CS Mr. Ashok Kumar Jain

Chairman Mr. Amit Burman

Auditor Walker Chandiok & Co LLP

Holdings – Top 10* % Holding % Holding

LIC 2.30 AB Sun Life 1.11

Blackrock 1.54 Arisaig India 1.11

Matthews Int 1.35 AB Sun life AMC 1.00

CW Bank of Australia 1.15 Mirae AMC 0.81

Vanguard 1.12 Mitsubishi Ufj 0.54

*Latest public data

Recent Company Research Date Title Price Reco

12-Feb-21 Multiple positives at play; Company Update

536 Buy

29-Jan-21 Top-tier growth sustains; Result Update

515 Buy

05-Jan-21 Multiple positives at play; Company Update

543 Buy

Recent Sector Research Date Name of Co./Sector Title

03-Mar-21 Hindustan Unilever Clearing the air: Decent recovery all ov; Company Update

24-Feb-21 Nestle India Robust plank to drive double-digit sales; Company Update

19-Feb-21 Bajaj Consumer Care Well-oiled for growth; Company Update

Rating Interpretation

Source: Bloomberg, Edelweiss research

Daily Volume

Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage

Buy Hold Reduce Total

Rating Distribution* 164 60 17 241

>50bn >10bn and <50bn <10bn Total

Market Cap (INR) 197 51 4 252

* stocks under review

Rating Rationale

Rating Expected absolute returns over 12 months

Buy: >15%

Hold: >15% and <-5%

Reduce: <-5%

TP535

TP545

TP665

300

375

450

525

600

675

Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20

(IN

R)

DABUR IN Equity Buy Hold Reduce0

6

12

18

24

30

Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20

(Mn

)


DABUR INDIA


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DABUR INDIA



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DABUR IN Equity 18Mar21 CU - Edelweiss