Buy Dabur India

Company Description

Dabur India is one of the leading FMCG companies in India with a very strong brand recall & leadership position in some of the niche segments. Its leading brands are Vatika, Anmol, Babool, Red Toothpaste, Real fruit juices, Chyawanprash, Dabur Honey, Hajmola, Odonil, Odomos, Sanifresh, Gripe Water, Janam Ghunti and Lal Tel. It also exports to various countries and is particularly strong in Middle East & Egypt. Exports account for 1/5th of turnover and are major drivers for growth growing at 35-40%. The company has also ventured into speciality retail with its Beauty & Wellness stores.

Investment Thesis & Valuation

The company is poised to grow at 15-20% with operating leverage enabling 20%+ bottom line growth.

At the CMP of Rs.89 the stock trades at 18x FY10 EPS of Rs.5

The Stock has seen a low of Rs74 in the current market fall but has bounced back sharply. The low is just to see our downside from the current levels. But the point is if you are willing to invest in this stock for next 2 years you can safely get a return of 20-25% per annum. Considering the current state of the market and risk-reward for the investment, one should definitely allocate some portion of his assets to Dabur.

Business Analysis

Dabur has organised businesses in three main divisions -
i) Consumer Care Division
ii) Consumer Health Division
iii) International Business Division

Consumer Care Division is further organised into various Strategic Business Units (SBUs) namely -
i) Hair Care - Amla & Vatika are the leading brand here with Anmol at lower end
ii) Baby & Skin Care - Gilabari, Lal Tail, Gripe Water & Janam Ghunti
iii) Oral Care - Red Toothpaste, Babool, Meshwak - all growing at healthy pace
iv) Health Supplements - Chyawanprash, Honey, Chywanprash Junior
v) Digestives & Candies - Hajmola, Hingoli, Pudin Hara are major brands here
vi) Home care - Odonil is leader, Sanifresh picking up, Odomos is posied to take off
vii) Foods - Real is the market leader, Activ and homemade are other sizable brands

New Launches

Come October the company will launch pan-India 2 more products in Health Supplement category - Chyawanprash Junior and ChywanPrakash. Chyawanprash Junor is malt food supplement for kids which will compete against likes of Bournvita, Hrolicks and Complan. The differentiation for this product will be natural herbs added into it.
It also lauch more products under its Real brand in fruit juice category. Dazzl which is launched in Home Care category will be taken pan-India. New products are slated to be launched in Skin care category in 4Q09. New products to contribute 6-7% to total revenue.

Consumer Health Division is mainly into the sale of Ayurvedic OTC products. The business has potential to grow at 15-20% on long term mainly as more & more people turn to ayurvedic products.

In retail they already have 7 stores (2 at NCR, 2 at Bangalore, 2 at Hyderabad and 1 at ). They have a plan to open 350 stores over next 5 years. A store area could range from of 1000 to 3000 sq ft depending upon location would offer healthcare, cosmetics, baby care, personal care and general merchandise. Its branded as 'newu'.

Acquisitions -
One more axis of growth which i have not touched is acquisitions. In past company has successfully acquired & integrated Balsara. Management has mentioned categorically about inorganic route of growth but not much has happened since Balsara. I believe we would see an acquisition from Dabur sooner than later.

Overall, its a solid defensive play in the current turbulent markets with 20-25% compounded return potential.

Performance Check of Banking Recos

Jun-26 Sep-19 Gain/(Loss) Low after Jun-26 Notional Loss at Low Notional Gain from Low
HDFC Bank 1050 1300 23.8% 903 -14% 44.0%
Axis Bank 676 709 4.9% 580 -14% 22.2%
KMB 514 630 22.6% 420 -18% 50.0%
BOI 243 283 16.5% 193 -21% 46.6%
Nifty 4315 4245 -1.6% 3816 -12% 11.2%


Not so bad performance as banking stocks have not only outperformed Nifty by a wide margin but also have given handsome absolute returns...

Indian bank stocks have been hammered mercilessly since January this year and most of them are now trading at 2008 lows. The interest rate scenario remains hawkish with a clear northward bias and hence bearish view on the bank stocks would continue to prevail over this period. So why should one then look at banking stocks for investments?

The answer to above question lies in answer to below mentioned question...

THE MILLION $ QUESTION - "How much of the higher interest scenario, loan book slowdown and pessimism has already been factored into prices?"

If you ask me almost 85-90% has already been factored into the prices. And thats one of the main reasons that the stocks actually bounced back on Wednesday (the day after announcement of CRR and Repo rate hike).

There is nothing risk-free in the markets. So it would be foolish to assume that banking stocks will not go down if the market goes down. What one should look at is optimizing risk-return rewards i.e. taking lower risk of downside vis-a-vis upside potential. And the risk return reward is currently hugely in favor of the banks. Why am I saying so?

The reason why i am saying that concerns and risks are priced in banking stocks and you have better risk-return reward is that they are going very cheap on valuations vis-a-vis growth prospectus.

Despite of higher interest scenario, though not at 8-9% India's GDP will still continue to grow at 7% which is good enough to grow loan demand at 15-20%+ for PSU and private banks respectively. Deposit growth continues to be robust at 20% plus and with current stock market condition would probably improve further as lot of people are preferring to go on cash. Most of the private sector banks have got down duration (a measure of sensitivity of debt/g-sec investment portfolio to interest rate movements) to close to 1-2. This will result much lower MTM (mark-to-market) losses on their investment portfolio this time. On a whole there would not be much slippages in NIMs (Net Interest Margins), lower MTM losses and lower NPA (non-performing assets) provisions than what market has already built in the prices.

Look at FY09 P/B valuation table below to realise how badly these stocks have been battered...

Axis Banks 2.4x
BoB 0.8x
BoI 1.7x
Canara 0.9x
HDFC Bank 2.4x
Kotak Bank 1.6x
SBI 1.6x
UBI 0.9x
ICICI Bank 1.2x
PNB 1.2x
IDBI 0.8x
OBC 0.6x
* Kotak bank and ICICI Bank's valaution are for core business after adjusting for other businesses like life insurance, asset management, broking etc.

These valautions as I said above are for current year i.e. FY09 and abysmally low....classic expample of iirational exuberance and therefore provide a great opportunity for GARP investor - an investor seeking growth at resonable price (price means valuaion).

But dont buy anything and everything. I will suggest a basket approach with banks with higher RoEs and higher growth.

So make a basket of the following banking stocks -
1. HDFC Bank - 20-30% growth 18-20% RoE (concerns on CBoP merger priced in)
2. Axis Bank - 30% growth 20%+ RoE (great franchisee...concerns on retirement of P.J.Nayak priced in)
3. Kotak Mahindra Bank - too cheap and best acquisition candidate alongwith Yes Bank in 2009, high equity market exposure already price in at 1.6x P/B for a ripe pvt sector bank
4. Bank of India - 20-30% growth, 20%+ RoE, only PSU bank showing clear signs of breaking berucratic shackles and becoming one like a pvt sector bank....will regain higher re-rating.

I will keep other PSUs and ICICI bank out (though ICICI Bank is really tempting me on valuations) for their poor growth and RoEs (ICICI Bank RoE is a low 12%).

So value investor go ahead and invest in banking stock with the above basket approach.

Keep watching this space for detailed valuation on these banks