Shares of Dabur India Ltd plunged by 8% on Thursday, October 3, following the company’s Q2 provisional performance report, which came in below Street expectations.
The stock declined to ₹571.25 on the Bombay Stock Exchange (BSE) as brokerages expressed concerns over inventory correction and pipeline adjustments in its India business.
Key Factors Behind Dabur’s Stock Decline
1. Inventory Correction
Dabur India is facing an inventory correction in its general trade (GT) channels, which is expected to result in a mid-single-digit revenue decline for Q2. The company’s focus on organised retail has led to a build-up of inventory in the GT channel, negatively impacting sales.
2. Pipeline Adjustment
The company is undergoing a pipeline correction, particularly in its FMCG segment, as retailers focus on clearing existing stock. This has reduced the demand for fresh stock, further affecting Dabur’s performance.
3. Weak Q2 Provisional Performance
Dabur’s consolidated revenue is expected to decline by mid-single digits for Q2, prompting several brokerage firms to lower their price targets. Nuvama Institutional Equities downgraded its rating from BUY to ADD, reducing the price target from ₹750 to ₹650. The brokerage cited the surprise in inventory correction as the main reason for its cautious outlook.
4. Downstocking in FMCG
Downstocking in fast-moving consumer goods (FMCG) is not uncommon, but the extent of Dabur’s inventory correction has surprised many analysts. The company’s over-reliance on the general trade channel, combined with downstocking, has added to the pressure on the stock.
5. Competitive Pressures
The cola price war in the beverages segment is another concern for Dabur. Analysts have pointed out that increased competition in the cola category could hamper Dabur’s market share, especially in the coming festive season.
What’s Next for Dabur India?
Despite the poor performance in Q2, analysts believe that Q3 could show signs of recovery, particularly due to better rural demand and the festive season. According to Emkay Global, the management expects growth to rebound starting in October 2024, with inventory levels normalizing and demand picking up.
Analysts’ Price Targets:
- Emkay Global: Target reduced to ₹650 (from ₹750), citing Q2 underperformance.
- Antique Stock Broking: Maintains BUY rating with a target of ₹718, predicting recovery in the festive season and rural demand.
- Nuvama Institutional Equities: Downgrades to ADD with a target of ₹650, expecting moderate near-term gains.
Conclusion
While Dabur India Ltd faces near-term challenges due to inventory corrections and weaker-than-expected Q2 performance, analysts remain optimistic about a recovery in Q3, driven by rural demand and festive season sales.
Long-term investors may want to hold on to their positions, as the company’s strong brand presence and diversified portfolio provide a solid foundation for future growth.
