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Investors with a two-three-year horizon can consider using the recent decline in price to accumulate the Dabur India stock. Dabur India appears set to deliver earnings growth of 22-25 per cent (annualised) over the next three years, on the back of proposed forays into FMCG categories such as personal and home care, scaling up of the foods portfolio, and recent launches in health supplements and skincare.

A diverse basket of brands that lends itself to extensions and a strong ‘ayurvedic’ and herbal association should help Dabur capitalise on the high-growth potential for the personal and healthcare businesses within the FMCG space. At its current market price of Rs 113, the stock trades at a premium valuation of about 23 times its expected earnings for 2008-09. This, however, appears justified in the light of the high return ratios enjoyed by the business and superior growth prospects.

Of the diversified portfolio that spans consumer products, health products and foods, the consumer-care business contributes two-thirds of Dabur’s current revenues. This straddles oral care (Babool, Meswak, Dabur Red), hair care (Vatika, Anmol), health supplements (Chyawanprash, honey), digestives (Hajmola) and home care (Odomos, Odonil, Sanifresh). Dabur’s brands in most of these segments sustained double-digit growth recently. Relatively slow-movers such as health supplements may also move into a higher growth trajectory if recent launches pay off. New product launches in the last few months include skin-cream extensions under Gulabari and brand extensions of Chyawanprash, apart from a household cleaner, Dazzle. Dabur also plans to leverage on its national distribution network to substantially expand its food offerings. Though competitive pressures in the new categories will be high, the company’s ability to connect with consumers on the ayurvedic and natural planks may stand it in good stead. That the company has managed robust growth in its oral-care portfolio despite being a late entrant, is evidence of this.

Dabur India has also lined up a retail foray in the health and beauty segment, with plans to open 350 stores in five years. Though funding for this venture may not be a challenge given the healthy cash coffers, the payoffs carry uncertainty given the likely competition in this segment. Rising input costs are also a risk, but may be offset by Dabur’s ability to take price increases.

Aarati Krishnan

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Dabur India: Buy

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