Management Speak: Dabur India (Outperformer) - In a sweet spot!

We present key takeaways of our interaction with Dabur at its analyst meet. Management has increased its guidance on volume growth for FY19 on the back of an improving macro environment as well as aggressive growth initiatives by the company.  Management expects to achieve double-digit volume growth in the remaining nine months of FY19, post Q1 as well. The company’s initiatives are centered around 1) driving incremental innovations 2) regionalization and increasing direct distribution and 3) aggressively defending market shares in key categories. Given the investments the company is making towards driving growth, management is confident of replicating FY18 margins in FY19, and also expects strong EBITDA margin improvement in FY20 aided by benefit from cost saving initiatives. We believe Dabur is among the best HPC plays in our universe, given its strong and diverse rural and naturals-oriented portfolio and expect the company to outperform peers. We have raised our earnings estimates by 2% each for FY20E/FY21E, in line with the company’s strong revenue growth guidance. Maintain Outperformer with a target price of Rs537.

Double-digit volume growth guided for the balance of FY19 –Management expects to achieve double-digit volume growth in the domestic business for FY19, post Q1 as well, on the back of improving growth trajectory in the FMCG industry and management’s initiatives towards driving the growth. This implies 13%+ volume growth (versus our estimate of 11%), which is likely to be highest among peers.

Renewed aggression in innovation and execution – Adding new variants to core brands across price points and investing in 2-3 under-leveraged brands a year would be key growth drivers for the company. Key initiatives that Dabur intends to enforce under the leadership of Mr Sunil Duggal and Mr Mohit Malhotra are 1) 20% increase in direct distribution and 2) regionalization of the country to find pockets of growth

Margins to consolidate in FY19; expand in FY20 – Given the investments that the company is making in people and advertising and sales promotion towards driving growth, EBITDA margins are unlikely to expand materially in FY19. However, as per the management, the benefit from cost saving initiatives under Project Lakshya will drive margin improvement in FY20E.