Update on the Indian Equity Market:
On Wednesday, NIFTY ended marginally higher at 15,809 (+0.3%) as it could not sustain the intraday higher levels. Among the sectoral indices, IT (+3.2%), PHARMA (+0.3%), and MEDIA (+0.2%) ended higher while REALTY (-1%), PSU BANK (-0.5%), and AUTO (-0.3%) led the losers. Among the stocks, WIPRO (+7%), TECHM (+2.6%), and INFY (+2.1%) led the gainers while MARUTI (-1.4%), ADANIPORTS (-1%), and HINDUNILVR (-1%) led the losers.
Excerpts of an interview with Mr. Mohit Malhotra, CEO of Dabur India (DABUR) published in Business Standard on 14th July 2021:
- Share of Dabur’s healthcare portfolio went up to 45 percent from 30 percent and essentials like oral did well, while the share of skincare, hair oil, and foods shrank.
- Being well aware that the discretionary portfolio may not do well, the company has diversified into areas like edible oil and launched several other products.
- The inflation has increased the input costs by 5-6 percent as it has hit the entire bucket of the business.
- The company has taken a 3 percent price hike and initiated cost optimisation measures. The company has planned to cut down Rs 1000 mn worth of costs in FY22, which won’t be enough. The pressure on operating margin can’t be ruled out till the December quarter.
- Sales through e-commerce channels have grown to 8 percent from 2 percent before Covid. In FY21, in spite of travel restrictions, Dabur earned 6 percent of the sales through e-commerce.
- The company has begun construction of their eighth plant, in Madhya Pradesh at an estimated cost of Rs 5,500 mn to meet current and future demand, taking advantage of the incentives provided by the government under its ‘Atmanirbhar Bharat’ program. The plant will help the company meet the demand for the next 10-12 years.
- Earlier, the company was spending 5-6 percent on advertising through digital media, but now the company is putting 25 percent of its budget into digital. Last year, the company increased its media spending, but now it has cut it down to 8-10 percent of sales as growing costs are a threat.
Asset Multiplier Comments
- People being eager to go back to offices and as the government has ramped up vaccination, it seems that the impact of the 3rd covid wave may not be as severe on the operations of Dabur as the second wave.
- The increase in demand for health and wellness products is expected to continue post-Covid. The increase in market penetration of these products bodes well for Dabur.
Consensus Estimate: (Source: market screener website)
- The closing price of DABUR was ₹ 586/- as of 14-July-2021. It traded at 56x/ 49x the consensus earnings estimate of ₹ 10.5/ 12.1 for FY22E/FY23E respectively.
- The consensus target price of ₹ 590/- implies a PE multiple of 49x on FY23E Earnings of ₹ 12.1/-.
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