Management Speak: Dabur India (Outperformer) - Contemporizing Ayurveda for next growth phase

We interacted with the management of Dabur India in their annual investor meet and were happy to see it getting more aggressive in the market place to defend market-shares and also build growth engines of the future. Dabur is uniquely positioned given its ‘Ayurveda’ lineage and is benefitting from the ‘Naturals’ wave but the key task at hand is to contemporize the brand through renovations and innovations in its existing diversified repertoire of offerings. Near-term strategy is to have a greater focus on ‘power brands’ which contributes ~70% to revenues. For the industry, rural growths have fallen behind urban but Dabur continues to grow faster in rural India; co is maintaining its target of mid-to-high single digit volume growth for FY20E, the immediate slowdown notwithstanding. We continue to like Dabur’s unique blend of healthcare portfolio and strong presence in the HPC category. Maintain OP rating with a revised PT of Rs484 (upward revise target multiple to 45x, from 40x given better execution on the ground).

Gain share in HPC; Drive penetration in Healthcare and Foods: Dabur HPC’s portfolio is marked with low market-share in highly penetrated categories and company’s strategy here would be to leverage on its competitive strength (more innovations across Naturals), expanding and plugging portfolio gaps and driving geographical expansion. In the Healthcare and Foods segment, Dabur has high market-share but category penetrations are lower and hence strategy here is to drive relevance of the category, improve accessibility through LUPs and driving product experience through sampling and premiumisation.

Renovate, innovate offerings; improve reach: Dabur has decided to focus on 8 power brands which contribute ~70% to revenues. Across these power brands NPDs and renovations would be scaled up meaningfully and as of now the company is not looking at entering new categories. Key focus area to contemporize the brand to remain relevant to the younger consumers and capitalize on the Naturals wave where Dabur has the right to win. Direct reach will be expanded to 1.2m outlets in FY20E from 1.1m in FY19, current overall reach stands at 6.7m outlets.

Slowdown yes, but temporary: Management believes current slowdown has been caused by liquidity crunch, agricultural distress, patchy monsoons and high unemployment. But Dabur believes this is temporary; moreover, rural growth for Dabur continues to outperform urban growth which is in contrast to the overall FMCG industry. Its Healthcare portfolio (~32% of rev), de-risks it to some extent to the overall market as this category in less impacted by slowdown and has lesser competitive intensity too.