Company Name – Dabur India Limited (Dabur) Current Share Price – INR 580 (December 9, 2021) Market Cap – INR 102,491 cr |
1. What is interesting about the stock?
Let’s start with a controversy. Dabur India's advertising campaign promoting immunity boosting product 'Chyawanprash' was trolled on social media after its brand ambassador Akshay Kumar announced that he has tested positive for Covid-19. But controversies are good for brand recall – as our Amitji sang in the movie Lawaris “Jo hai Naam wala .. Wahi to badnaam hai”..
We’ve all consumed Dabur products, whether it is chyawanprash, honey, hair oil or juices. A household name, Dabur is the fourth largest FMCG company in India with revenues in excess of INR 10,000 Cr & market capitalization of over INR 100,000 Cr. Established in 1884, Dabur is a proven and long-lasting consumer company with a very high brand recall. The company has a portfolio of over 250 herbal/ayurvedic products and has leading market shares in health supplement, OTC & ethical products, hair oils and juices. Oral care is another category that is constantly acquiring market share. Dabur’s ranking in key categories is mentioned in the table below:
Apart from brand recall, a key factor for FMCG businesses is distribution ability. Dabur has a total distribution reach of 6.9 million retail outlets and derives ~47% of its sales through rural regions with a presence in 60,000 villages. To expand its rural reach, the company has added 7,000 yodhas (village-level entrepreneurs). Its current rural reach is at 80,500 outlets. That kind of a distribution network takes decades and decades to build!
Leaving aside the above controversy, COVID-19 has resulted in people giving due importance to health (proactive vs reactive earlier) and hence consumption of ayurvedic based immunity boosters and health supplements has increased. In FY21, health supplements (chyawanprash, honey etc.) and OTC categories (Honitus and Dabur Lal Tail) recorded growth of 42% and 31% respectively.
Dabur has manufacturing facilities across 12 cities in India and 8 locations overseas. Its products are available in over 100 countries and are well recognized in the Middle East, SAARC countries, Africa, US, Europe and Russia.
Key competitive advantages of the Company are:
A strong brand that resonates with villagers and the urban rich alike
A powerful distribution network that is hard to replicate and forms the foundation for launch of new products
Focus on herbal and ayurvedic products which are gaining traction as opposed to chemicals-based products
2. Key Historical Financials
9 brands in Dabur’s portfolio - Chyawanprash, Honey, Lal Tail, Dabur Honitus, Pudin Hara, Red Toothpaste, Amla Hair Oil, Vatika and Réal fruit juice, contribute to more than 70% of Dabur's total sales
In FY20, revenues had stagnated due to last quarter impact of COVID-19 when revenues fell to INR 1,865 Cr in Q4FY20 as compared to INR 2,353 Cr in Q3FY20 and INR 2,128 Cr in Q4FY19
The company is back on growth trajectory with YoY growth in Q2FY22 being 12% and Q1FY22 being 32%
3. What is my view on company valuation?
Dabur is currently trading at EV/EBITDA (TTM) ratio of c. 40x and P/E (TTM) ratio of c. 55x. This is in line with competitors such as Godrej Consumer and Marico which are trading at P/E (TTM) ratios of 52x and 57x respectively. Globally, Unilever PLC and P&G are trading at P/E (TTM) ratios of 23x, 28x respectively. For stable and mature businesses such as Dabur, past performance is usually a good parameter to determine future performance. Over the 10 year period between FY11 and FY21, Dabur’s revenue grew by 8.9% CAGR, EBITDA by 10% CAGR and PAT by 11.5% CAGR. PAT during the same period for Godrej Consumer and Marico has grown by 12.8% and 15% CAGR respectively.
For future growth the company is aggressively foraying into new product categories such as edible oil, carbonated drinks, household insecticides, fruit drinks, milkshakes etc. Simultaneously it is expanding its distribution network and in the next 2 years is expected to increase direct distribution to 1.5 million outlets and 80,000 villages.
In my view, Dabur is a strong and robust business but is currently expensive due to excess liquidity driving up P/E ratios for all companies. However, it is a stock worth accumulating periodically below P/E (TTM) ratio of 35-40x which is its 5 year average and holding in the long term.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Contribution of international business has declined every year from ~32% in FY16 to 26% in FY21. Failure to reverse the decline could result in geographical risk for the company with too much dependence on India
Rapid growth of new competitors in ayurvedic products such as Patanjali and multiple new age direct to consumer brands
About the Author
I have over 14 years of experience in investment banking and wealth management. I am an engineer by background and MBA from a premier institute in India.
Disclosure
I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.