Motilal Oswal Bets On This FMCG Stock For 30% Returns

Broking firm, Motilal Oswal bets on the stock of Dabur India for good returns. The company remains among the top picks for Motilal Oswal from the staples space along with Godrej Consumer.

What makes the stock of Dabur a good stock to buy?

According to Motilal Oswal, the key catalysts that underpin a sustained double-digit topline growth for DABUR include an impressive performance in the Ayurvedic healthcare space, an encouraging output from the Power Brand strategy, an improving outlook for the F&B business, and a host of new launches by the company.

"In fact, Dabur India is on track to deliver a double-digit sales growth in FY22E, a feat achieved in two out of three years since the then new CEO took over," the brokerage has said.

Brand strategy

According to Motilal Oswal, DABUR's India's Power Brand strategy of focusing on nine of its major brands - that accounted for a majority (70%) of the company's consolidated revenue -has resulted in a faster-than-overall growth for these brands despite the pandemic.

"Market share gains have also been consistently impressive in these power brands. With a higher allocation of overall marketing spends, these brands not only received better visibility but also garnered more focus in terms of innovations and renovations," the brokerage has said.

According to Motilal Oswal the downside risks to our investment case include: a) a persistent and intensified rural slowdown, b) a spike in material cost pressures, c) higher-than-expected moderation in the demand for herbal health products as the pandemic recedes, and d) a reversal in recent market share gains.

Valuations and view

"Given the high potential for topline and earnings growth, especially once the company completes its ongoing investment phase, DABUR remains one of our top two picks in the Staples space along with GCPL. The recent stock price correction of ~15% from its peak offers an attractive entry point in our opinion with the stock now trading at 39x FY24E P/E, at a discount of 15%/20% to its historical three/five-year averages, respectively. We maintain our BUY rating on the stock with a target price of Rs 705, valuing the company at 50x FY24E P/E," the brokerage has said.