dabur in equity 18mar21 cu - edelweiss
TRANSCRIPT
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited
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]
Corporate access
Financial model Podcast
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DABUR INDIA
Edelweiss Securities Limited
2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
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
Edelweiss Securities Limited
DABUR INDIA
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 3
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
Edelweiss Securities Limited
4 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
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
(%)
Edelweiss Securities Limited
DABUR INDIA
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 5
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
Edelweiss Securities Limited
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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 (%)
Edelweiss Securities Limited
DABUR INDIA
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 7
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
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Sham
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o
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aste
Dig
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ve T
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ts
Ble
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MR
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Hai
r O
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Ch
yaw
anp
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Juic
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& N
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(bp
s)
MAT Mar'20 vs Mar'19 - Increase in volume share
DABUR INDIA
Edelweiss Securities Limited
8 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
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
Edelweiss Securities Limited
DABUR INDIA
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 9
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
Edelweiss Securities Limited
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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
Edelweiss Securities Limited
DABUR INDIA
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 11
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
Source: Company, Edelweiss Research
DABUR INDIA
Edelweiss Securities Limited
12 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset
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
Source: Company, Edelweiss Research
Increasing traction on digital platforms
Source: Edelweiss Research
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
Source: Edelweiss Research
0.0
3.0
6.0
9.0
12.0
15.0
Q1FY20 Q1FY21
(%)
Digital spends (% of ad spends)
Edelweiss Securities Limited
DABUR INDIA
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 13
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
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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
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DABUR INDIA
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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
Egyp
t
MEN
A
Ne
pal
Ban
glad
esh
(%)
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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.
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DABUR INDIA
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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.
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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
)
Edelweiss Securities Limited
DABUR INDIA
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