With the Balsara-acquisition driven growth now exhausted, Dabur’s new product pipeline looks bare. Although the Femcare acquisition should help slightly, it will be earnings dilutive. We expect this lack of new products to hamper long-term growth.
With fast-changing style statements and incomes, products need to be introduced to tap up- and down-trading. Lack of such cross segment and sub-segment products cap growth rates. The ayurved focus avoids competition, but sets a ceiling on growth.
Dabur has not yet finalized plans for its NewU retail stores and the consumer health division (CHD). We expect the entry into the low-RoE retail business, with no concrete plans, to tie up cash.
We initiate coverage on the company with a SELL rating and a target price of Rs88. At our target price, Dabur would trade at 18x FY10e earnings, a 15% discount to market leader HUL’s target multiple of 21x CY09e earnings.