Dabur must boost its strategic roadmap

by Aditya Kumar

Dabur India Ltd recently held its Capital Markets Day 2023 event, but it didn’t attract much attention from investors. This lack of response is not surprising given that the fast-moving consumer goods (FMCG) company has outlined some targets that can only be evaluated over time.

One of Dabur’s medium-term goals is to achieve sales of ₹7,000 crore in its home and personal care (HPC) business and ₹5,000 crore in its healthcare business. The company also aims for double-digit growth in its food and beverages (F&B) business. These three segments, HPC, healthcare, and F&B, accounted for a significant portion of Dabur’s domestic revenues in FY23. The company plans to grow its international operating revenue in double digits as well.

To achieve its targets, Dabur is focusing on strengthening its core and expanding into new adjacencies through power platforms. The company’s power platform strategy involves extending its brands into adjacent product lines to expand its product portfolio’s total addressable market. For example, Dabur’s brand “Real” has evolved beyond juices and nectars to include fruit drinks, a PET portfolio, aloe vera-based drinks, plant-based drinks, aerated fruit beverages, milkshakes, and more.

However, not all analysts are optimistic about Dabur’s power platform strategy. Some believe that it may increase business complexity, which could be a concern. Additionally, driving premiumization may be challenging for Dabur due to its focus on middle-class and rural India. The company may face risks of weakness in rural demand, particularly in the near term.

Despite these challenges, Dabur remains positive about its future performance. The company expects FY24 to be better than FY23, with improvements in rural markets. Dabur aims to achieve an Ebitda margin of 19.5% in FY24 and more than 20% in FY25. It has also seen improvement in its consolidated revenue growth rate since implementing its new strategy four years ago.

Currently, Dabur’s stock has been underperforming the Nifty FMCG index in 2023. Analysts attribute this underperformance to concerns about valuations and the slow recovery of rural demand. The stock trades at 44 times estimated earnings for FY25, and while there may not be obvious tailwinds, it’s important to note that the rural demand recovery has been slow, which may limit significant upside potential.

In conclusion, Dabur India’s Capital Markets Day 2023 event may not have generated much excitement among investors, but the company remains focused on its targets and strategies. The success of its plans will depend on various factors, including the recovery of rural demand and its ability to navigate business complexities. Investors will be closely monitoring Dabur’s progress towards its goals in the coming months.

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