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Prabhudas Lilladher
Dabur (Hold)
CMP: ₹448.95
Target: ₹437
Dabur has maintained a very cautious stand due to near-term macro-economic headwinds led by 1) slowing down of MoM FMCG growth rate (13.2 per cent in 2Q19 to 3.7 per cent in July 2019); 2) increased unemployment; 3) liquidity concerns with the dealers; and 4) floods in many States and curfew in J&K. Dabur has pinned its hopes on the early festival season (2Q versus 3Q last year), monsoons and the likely impact of government boost for rural India. Distribution expansion and smaller SKU’s are pushing rural sales for Dabur, which are growing ahead of Urban demand by 600 bps (rural sales up from 44 per cent to the 48 per cent). Dabur shall be focussing only 8 power brands with innovations in existing brands with no new segment addition.
Dabur has maintained its guidance of mid-single digit volume growth in FY20 led by 1) scaling up of the 8 power brands; 2) increasing the direct reach in rural (by 25 per cent) as well as urban India; and 3) revamping the supply chain infrastructure. We believe that Dabur remains vulnerable to current slowdown in rural markets and poor consumer sentiments. We estimate 9.9 per cent sales and 13.7 per cent PAT CAGR over FY19-21 and value the stock at 39xJune21 EPS to with a target price of ₹437. Retain HOLD.
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