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Nirmal Bang Report
We are upgrading Dabur India Ltd. to a “Buy” as a play on the potential recovery in rural demand. With the likelihood of a good monsoon, gradually moderating inflation levels and outcome of the national elections (which we believe will make the government address the issue of rural distress more earnestly), rural demand, which is already showing signs of incipient recovery, could play a big part in driving mid to high single digit volume growth in FY25.
With 45-50% of its domestic sales coming from rural areas (highest among all peers, barring Emami), the widest distribution reach apart from HUL, increase in direct reach in recent years, penetration into additional ~63,000 villages in the last three years and market leadership in most of its key categories, Dabur is better placed to take advantage of the tailwind in favor of rural consumption vis-a-vis peers.
Its track record on top-line has been exemplary compared to Ebitda and PAT growth, which has been lower and is likely to see an uptick going forward.
We have raised our FY25 and FY26 EPS estimates by ~2.5-3% on the back of potential benefits from an impending rural recovery. We are assuming Revenue, Ebitda and PAT CAGR of 10%, 13% and 13%, respectively over FY24-FY26E.
We have also increased our target multiple for Dabur from 45 times FY26E to 53 times FY26E - in line with five-year average PE multiple. Better than historical performance, likely better performance compared to earlier expectations and increased appetite for defensive stocks aid increase in our multiple. Our Target Price of Rs 700 reflects 17% upside from the CMP.
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