Tactical Mergers And Global Expansion Drive Future Growth Amid Market Challenges

Key Takeaways

• Strategies like inventory rationalization and mergers are expected to improve revenue growth, cost synergies, and profitability, enhancing Dabur's long-term business health.
  
• Expansion and premiumization efforts in Home Care and Drinks segments are expected to drive growth, counter competition, and support international business revenue.
  
• Competitive pressure and market shifts threaten revenue and profitability, exacerbated by adverse weather, high food inflation, and currency losses.

Catalysts

Operates as a fast-moving consumer goods company worldwide.

• The inventory rationalization initiative is expected to enhance the profitability of Dabur's general trade distributors and ensure long-term business health, potentially leading to improved revenue growth in the future.
  
• Dabur's merger with Sesa Care is expected to generate substantial revenue and cost synergies, allowing the company to premiumize its hair oil portfolio, which could positively impact gross margins and overall earnings.
  
• The expansion and premiumization of the Home Care portfolio, including products like air fresheners and mosquito repellents, are expected to drive double-digit growth, thereby boosting revenue and improving net margins.
  
• Dabur's strategic initiatives in the Drinks and Beverage segment, such as enhancing affordability and expanding distribution, aim to counter competitive pressures and are anticipated to restore and grow revenue in the category.
  
• International business growth, highlighted by a strong 13% constant currency increase, offers resilience against domestic challenges, supporting overall revenue and potentially increasing operating margins.

Dabur India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dabur India's revenue will grow by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.4% today to 15.9% in 3 years time.
• Analysts expect earnings to reach ₹26.6 billion (and earnings per share of ₹14.99) by about November 2027, up from ₹17.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹23.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 60.0x on those 2027 earnings, up from 50.3x today. This future PE is greater than the current PE for the IN Personal Products industry at 26.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.44%, as per the Simply Wall St company report.

Dabur India Future Earnings Per Share Growth

Risks

• The adverse weather conditions and high food inflation have impacted urban consumption, particularly in the beverage category, leading to a decrease in revenues by 5.5% this quarter.
  
• Reliance on the growth of emerging channels over general trade has pressured profitability, suggesting potential challenges in sustaining revenue and net margins.
  
• Competitive pressures, particularly in the oral care and beverage segments, threaten to impact market share and revenue, as competitors gain from pricing advantages.
  
• Inventory correction efforts to help GT partners could lead to temporary disruptions or declines in sales, potentially impacting short-term revenues and profits.
  
• Decline in international market currency conditions could adversely impact earnings due to translation and transaction losses, affecting overall financial performance.

Valuation

• The analysts have a consensus price target of ₹615.55 for Dabur India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹710.0, and the most bearish reporting a price target of just ₹520.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹167.1 billion, earnings will come to ₹26.6 billion, and it would be trading on a PE ratio of 60.0x, assuming you use a discount rate of 13.4%.
  
• Given the current share price of ₹508.2, the analyst's price target of ₹615.55 is 17.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.