Threat of Patanjali on Dabur's portfolio has led to underperformance of the stock in the past three months. However, only 9% of Dabur's portfolio (Chyawanprash and Honey) are under direct line of attack. Further, we believe Patanjali's presence is helping these categories grow faster and the recent dissonance among few Patanjali consumers about crystallization of Patanjali honey and Dabur's aggressive campaign should help Dabur regain a few lost consumers. Besides, the reason why Dabur's business suffered in FY16 was related to multiple transitory issues. With prospects of normal monsoon in FY17, Dabur, with about 55% of revenues coming from rural India, will be one of the largest beneficiaries of revival in rural demand. We expect: 1) Dabur's juice business to report healthy growth in FY17 as supplies from Nepal have normalised, 2) Namaste, which reported an extremely poor FY15, has reported double-digit growth in 9MFY16. We expect Namaste to witness a sharp jump in EBITDA margins over FY16-FY18 as its fixed costs may remain similar despite rising revenues, and 3) Dabur's oral care and hair oil segments are gaining market share in spite of steep competition. We expect the company to report 14.7% earnings CAGR over FY15-FY18. Reiterate BUY, with a revised target price of Rs289.
Source ICICI Securities
