Trade Nivesh | The stock has corrected by 24 percent from its 52-week high and trades at 41 times FY20 estimated earnings.
As a weekly tactical pick, we have identified Dabur, which can disproportionately benefit from the new government's expected policy measures. The first Union Budget from the new government is likely to address glaring rural distress, due to which demand growth slowdown is visible in the entire consumption basket – from durables to staples.
Volume growth moderation
Dabur’s volume growth in the last quarter moderated to 4.3 percent, in-line with sector-wide trend. It came on relatively high base of 7.7 percent in Q4 FY18 and was in sharp contrast to the average 12 percent volume growth seen in the previous six quarters. Large part of this moderation is due to rural slowdown. Till September 2018, in the case of Dabur, rural demand was growing at 1.3 times that of urban, but the same has moderated to 1.1 times in the last quarter.
We believe that policymakers are likely to address the rural distress and announce measures that can help improve rural demand. In terms of order of effect, consumption of relatively essential daily items such as staples should improve first. Dabur, which has around 45 percent of sales accruing from rural areas, should benefit from this.
Additionally, the following trends remain favourable:
Strong positioning in Naturals: In the healthcare segment, the company continue to post double-digit growth led by demand for Chyawanprash and digestives. In the case of honey, management commentary suggests that Dabur has recouped market share loss to a great extent. Health supplements (Chyawanprash, Honey) sales have grown 25 percent in the last two years.
Personal care is not just oral care: The company continues to witness market share gains in key categories such as shampoos, hair oil and oral care. In the oral care category, Dabur has gained market share from Hindustan Unilever (HUL) and Colgate-Palmolive (India) in the last three-to-four years.
Key risk to watch: Dabur faces strong competition in the beverage segment where juices now closely compete with dairy-based drinks.
Outlook
The management expects high single-digit volume growth for FY20. There is an upside risk to it due to impending rural focused policy initiatives and prospects of a near normal monsoon.
The stock has corrected by 24 percent from its 52-week high and trades at 41 times FY20 estimated earnings. We believe that a good part of the growth concern is now priced in. On a longer term assessment, we remain positive about the company’s successful execution of product-wise business strategies, which helped in gaining or defending market share.
As a weekly tactical pick, we have identified Dabur, which can disproportionately benefit from the new government's expected policy measures. The first Union Budget from the new government is likely to address glaring rural distress, due to which demand growth slowdown is visible in the entire consumption basket – from durables to staples.
Volume growth moderation
Dabur’s volume growth in the last quarter moderated to 4.3 percent, in-line with sector-wide trend. It came on relatively high base of 7.7 percent in Q4 FY18 and was in sharp contrast to the average 12 percent volume growth seen in the previous six quarters. Large part of this moderation is due to rural slowdown. Till September 2018, in the case of Dabur, rural demand was growing at 1.3 times that of urban, but the same has moderated to 1.1 times in the last quarter.
We believe that policymakers are likely to address the rural distress and announce measures that can help improve rural demand. In terms of order of effect, consumption of relatively essential daily items such as staples should improve first. Dabur, which has around 45 percent of sales accruing from rural areas, should benefit from this.
Additionally, the following trends remain favourable:
Strong positioning in Naturals: In the healthcare segment, the company continue to post double-digit growth led by demand for Chyawanprash and digestives. In the case of honey, management commentary suggests that Dabur has recouped market share loss to a great extent. Health supplements (Chyawanprash, Honey) sales have grown 25 percent in the last two years.
Personal care is not just oral care: The company continues to witness market share gains in key categories such as shampoos, hair oil and oral care. In the oral care category, Dabur has gained market share from Hindustan Unilever (HUL) and Colgate-Palmolive (India) in the last three-to-four years.
Key risk to watch: Dabur faces strong competition in the beverage segment where juices now closely compete with dairy-based drinks.
Outlook
The management expects high single-digit volume growth for FY20. There is an upside risk to it due to impending rural focused policy initiatives and prospects of a near normal monsoon.
The stock has corrected by 24 percent from its 52-week high and trades at 41 times FY20 estimated earnings. We believe that a good part of the growth concern is now priced in. On a longer term assessment, we remain positive about the company’s successful execution of product-wise business strategies, which helped in gaining or defending market share.
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