Dabur Shares Gain After Morgan Stanley Upgrade Citing Rural Recovery
Morgan Stanley has raised the target price of Dabur India to Rs 660 apiece from Rs 578, implying an upside of 11%.
Shares of Dabur Dabur India Ltd. gained after Morgan Stanley upgraded the consumer goods company to "overweight" as rural recovery and an improving portfolio mix would drive topline growth.
Morgan Stanley also raised the price target for Dabur India shares from Rs 578 to Rs 660, implying an upside of 11%.
The demand trends are yet to reflect any recovery in the rural sector, but there is a strong signal that the rural weakness reported over the past four quarters could be a turning point, the research house said in a Dec. 06 note.
Adding to this, government spending in rural India is picking up, which bodes well for Dabur, as 45% of its revenues come from the rural economy—the highest within our consumer coverage universe, the note said.
“Dabur has been increasingly focused on rural markets, and the company has significantly increased its distribution infrastructure in rural areas," the research house said. "The number of villages covered has doubled from 44,000 in FY19 to 89,000 in FY22."
The company is also supporting its increased distribution with a product line designed for the rural market, and targeted marketing initiatives, Morgan Stanley said.
The company that makes Chyawanprash wants to expand its line of drinks and is aiming for lower prices in rural markets, the note said. It is also working on a network for delivering food and drinks to rural areas, it said.
"We forecast 9%, 13%, and 12% revenue growth in FY23, FY24, and FY25, respectively," the research house said. "We expect margin improvement in the second half of the current fiscal to partially offset the weakness in the first half of FY23 and to show year-over-year improvements in FY24 and FY25."
"High competitive intensity" in household and personal care portfolios is the key downside, as it would slow the growth of the food and beverage portfolio, it said.
Shares of the company rose 1.66% to Rs 602.45 apiece as of 11:35 a.m., compared to a 0.34% decline in the benchmark Nifty 50.
Of the 45 analysts tracking the company, 32 maintain a 'buy' rating, 12 suggest 'hold,' and one recommends 'sell,' according to Bloomberg data. The average 12-month consensus price target implies that the return potential of the stock is 4.1%.