Why Dabur Share Price is Falling

For a fast-moving consumer goods (FMCG) company, the distribution network is like a lifeline. The distribution translates consumer demand into actual sales.

In India, the distribution reach is more or less well established in the urban regions. However, the reach is inhibited in small towns and villages due to lack of basic infrastructure.

That is why the top FMCG firms are in an expansion mode, to capture the market share in these areas.

One standout company that's successfully implementing changes in rural areas is Dabur India. The FMCG firm earns nearly half of its domestic revenues from rural India.

Over the years, the company has embarked on several aggressive rural pushes through decent initiatives.

However, Dabur is currently feeling the pinch for its India operations.

The company recently shared an update for its Q2 earnings (scheduled to be released on 30 October 2024).

The FMCG major said that it's likely to see a mid-single digit decline in consolidated revenue for the said quarter amid correction in its India operations.

Reacting to the above, shares of Dabur India skid 6% today and registered one of the biggest intraday falls for 2024.

Let's deep dive into the Q2 update and what lies ahead for the company known for its masala brands.

Why Dabur Share is Falling

# Disappointing Q2 Update

Earlier this week on Tuesday, the company gave updates on its July-September 2024 quarter performance.

After going through the filing, the key takeaway was Dabur observing the weakest quarter in as many as 4 years!

The BSE filing went on to reveal that as a result of lower primary sales, Dabur's profitability will be impacted during the quarter and the operating margin for the quarter is expected to decline in the range of mid to high teens due to deleverage and continued investment behind brands.

The filing went on to add...

• The company has seen disproportionately higher growth in organised channels during the last few quarters and has taken an "important strategic decision" to correct distributor inventory in the General Trade (GT) channel and improve the ROI.

During the quarter, the performance was dampened due to extreme weather conditions, including floods and heavy rains.

Following this update, several brokerage houses downgraded the stock, which ultimately resulted in the stock price nosediving over 6%.

According to one of the brokerages, Dabur's decision to take a one-time hit for inventory correction contrasts with its peers, who are addressing similar issues gradually.

What Next?

Dabur's management said that the inventory rationalization is temporary, and the company is expected to see revival in demand from October 2024.

Its international biz & Badshah Masala brands continued to grow in double digits and the management expects revenue growth to revive from October 2024.

Developing and selling its products in the homegrown medicine system, Dabur has come a long way in becoming one of India's well know FMCG companies.

On a CAGR basis, in the last five years, the company's net sales and net profit have grown by 7.9% and 5.5%, respectively.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	86,846	95,617	108,887	115,299	124,040
Growth (%)	2%	10%	14%	6%	8%
Operating Profit	20,946	23,247	26,436	26,055	28,784
OPM (%)	24%	24%	24%	23%	23%
Net Profit	14,450	16,933	17,392	17,072	18,427
Net Margin (%)	17%	18%	16%	15%	15%
ROE (%)	24.0	24.1	22.1	19.8	19.4
ROCE (%)	26.4	27.6	26.7	23.9	23.7
Dividend (Rs)	3.0	4.8	5.2	5.2	5.5
Debt to Equity (x)	0.1	0.1	0.1	0.1	0.1

Data Source: Ace Equity

Surprisingly, even though India's economy is doing well as per the current situation, foreign investors have been trimming their stake in Dabur India.

Figures show that their holding has declined from 20.5% in December 2022 to 14.99% in the June 2024 quarter. In fact, June 2024 was the sixth consecutive quarter where FIIs sold their holding in Dabur.

While FII holding has gone down, promoters of the company have bought stake from the open market, taking their stake to 66.24%.

Going forward, the company's focus on power brands is expected to drive growth.

How Dabur Share Price has Performed Recently

In the past 5 days, Dabur share price has fallen 7%.

Today, the stock declined over 6% to touch a low of Rs 571.

Dabur has a 52-week high of Rs 672 touched on 17 September 2024 and a 52-week low of Rs 489 touched on 16 April 2024.

In 2024 so far, the stock price is up 5%. While in the past 1 year, Dabur share price is up 7%.

Here's a table comparing Dabur with its peers -

Comparative Analysis

Company	Dabur	Emami	Galaxy Surfactants	Godrej Consumer	HUL
ROE (%)	19.4	30.5	14.8	-4.3	20.3
ROCE (%)	23.7	32.8	17.8	3.3	28.1
Latest EPS (Rs)	10.6	16.9	86.3	-4.2	43.9
TTM PE (x)	58.4	44.3	35.3	0.0	66.4
TTM Price to book (x)	10.7	12.6	4.8	10.9	12.8
Dividend yield (%)	0.9	1.1	0.7	0.4	1.4
Industry PE	74.6
Industry PB	13.1

Data Source: Ace Equity

About Dabur

Dabur, an FMCG giant with a well-established household name for over 139 years, is one of the most prolific names in the Indian market.

The company is involved in the production of Ayurvedic medicines and natural products, and now they are a multinational brand that is present in more than 120 countries around the world.

From tasty 'hajmola' to bitter yet effective 'sudarshan ghanvati' medicine to trusted 'chyawanprash', Dabur has a lot of products where it has left a strong impression.

To know more about Dabur, check out its factsheet and quarterly results.

Happy Investing!

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