We reiterate our ?overweight? rating on Dabur India and raise our price target to R218 (from R200) a share.
Our price target for Dabur is based on our target P/E of 30x the average of FY15e and FY16e EPS. Dabur is trading at a c7% discount to peers on FY15e P/E (and PEG ratio of 1.2x) despite a strong 23.6% earnings growth forecast over FY14-16e.
The company reported the best volume growth (9.4%) in our consumer coverage. Our positive view on the stock is driven by Dabur?s significant presence in rural segments which are growing at a much higher rate than urban areas, positioning in niche categories, leading to strong pricing power, relative insulation from the discretionary spend category, and improving cash generation.
We believe the stock is likely to re-rate to the high end of its trading range, given its relatively more resilient portfolio, improving cash returns and ROE as operating leverage plays out.
As such, we apply a target P/E multiple of 30x, in line with its coverage peers and at a 15% premium to its historical average, which we believe is justified given Dabur’s reliable growth outlook. Dabur?s stock has outperformed its peers? by c13% since October 2013, and we expect this outperformance to continue, going ahead.
