Covid tailwinds led to a 50% growth in Healthcare – Dabur India

Update on the Indian Equity market:
Amid the uncertainty surrounding the US Presidential election outcome, Indian markets remained volatile on Wednesday. The Nifty50 ended marginally higher at 11,909 (+0.8%). Among the stocks, INDUSINDBK (+4.9%), SUNPHARMA (+3.7%), and DIVISLAB (+3.6%) ended the day higher. UPL (-3.9%), AXISBANK (-2.6%), and HDFC (-2.2%) led the losers. Among the sectoral indices, PHARMA (+2.2%), IT (+1.8%), and AUTO (+0.7%) led the gainers. REALTY (-1.9%), METAL (-0.3%), and FINANCIAL SERVICES 25/50 (-0.1%) led the losers.

Excerpts of an interview of Mr. Mohit Malhotra, CEO, Dabur India published in Mint on 4th November 2020:
• Dabur India recently reported 2QFY21 numbers with ~17% domestic volume growth compared to a year ago. There has been an all-around recovery- economy, rural, urban opening up, modern trade opening up, and e-commerce.
• Healthcare got a tailwind and continues to do well; home and the personal care portfolio have seen a sequential recovery in all the sub-categories.
• Healthcare has grown by 50%, out of which health supplements grew by 70%. That is the one that has driven growth.
• Consumption is very muted and the whole mindset is about saving and not splurging. That is why most discretionary products have not yet picked up. In-home consumption continues and this will sustain over a period of time.
• This quarter, the contribution of new products was ~5-6%. The new product launches are not just in categories but also specific to channels, such as e-commerce first products. Dabur is also trying to get into adjunct categories around its power brands, so it is both line and brand extensions. These new launches have also helped drive growth in revenue.
• Covid-19 has been an inflection point for Dabur. There are some fundamental changes being made, in both go-to-market and the way they look at categories, and capitalizing on the opportunities. Capitalizing on e-commerce will help connect with the millennials and urban consumers while strengthening the rural distribution will help resonate with the rural consumer.
• The casual labor force suffered the most due to the outbreak of the virus and they were the ones who went back. Since that labor didn’t come back, there was some hiring from the remote parts of Jharkhand and some other states. Initially, there was some productivity fall and now, post-training, they are at 100% of pre-covid levels.
• The rural growing significantly ahead of urban is expected to continue for a while.

Consensus Estimate: (Source: market screener website)
• The closing price of Dabur India was ₹ 519/- as of 04-November-2020. It traded at 55x/ 48x/ 42x the consensus earnings estimate of ₹ 9.5/ 10.9/ 12.4 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 544 implies a PE multiple of 44x on FY23E EPS of ₹ 12.4/-.

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