(Photo: Bloomberg)
(Photo: Bloomberg)

Dabur India’s new strategy is likely to bring confidence for its investors

  • FY20 has started well for the company, what with a robust volume growth of 9.6% in the June quarter
  • Analysts say the company aspires to make its brands more relevant for millennials

For all the talk of a consumption slowdown, shares of Dabur India Ltd have put up a decent show. The stock has risen almost 10% in FY20 so far. FY20 has started well for the company, what with a robust volume growth of 9.6% in the June quarter, easily one of the best in the consumer space.

Recently, analysts met Dabur India’s management and returned pleased with their commentary. “A subtle but significant change from the previous analyst meet in August 2018 was the company’s stance: less bullish on the short term but decisively more certain of the long-term strategic direction of the company," said analysts at Kotak Institutional Equities in a report on 9 September.

Here, Dabur India stressed that it is looking to shift its focus back to its core strength, which is Ayurveda. This is helpful given the consumer’s increasing awareness and affinity towards natural products. The company will increase its focus on nine power brands from its product categories, which constitute about 65-70% of its sales.

“These brands would receive the maximum management bandwidth and resources," said the Kotak report. Power brands are expected to grow at a relatively faster pace and add to incremental growth meaningfully given their big contribution in the overall pie.

“A commitment to create a vibrant and dynamic new company was clearly evident," said analysts at SBICAP Securities Ltd in a report on 9 September. “This has, hitherto, been an area of concern; for instance, notwithstanding more than 100 years of Ayurvedic heritage, Dabur moved to boost its Ayurvedic momentum only after Patanjali’s aggressive foray into Ayurvedic products," they added.

(Graphic: Santosh Sharma/Mint)
(Graphic: Santosh Sharma/Mint)

Dabur India will also consider stepping up innovation and renovation as a part of its strategy. Analysts say the company aspires to make its brands more relevant for millennials.

After underperforming the Nifty 200 index in the initial months of FY20, the Dabur India stock has outperformed the index in recent months. Not surprisingly, valuations aren’t particularly cheap, with the stock trading at 48 times estimated earnings for FY20, based on Bloomberg data.

Also, after experiencing solid volume growth in the June quarter, the company’s investors would do well to keep expectations low for the current quarter. While Dabur India’s clear long-term vision can be appreciated, it’s worth noting that the demand slowdown would hurt in the near future. During the analysts’ meet, the management said the current quarter remains challenging. This should keep big upsides in the share price limited for some time.

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