Dabur India’s stock dropped by 8% following its Q2 provisional results, which fell below market expectations. The primary reason for this decline was inventory correction in its Indian business, resulting from overstocking in the general trade channel. This situation developed due to strong growth in organized retail, which caused a build-up of inventory over recent quarters.
Several analysts expressed concerns about Dabur’s near-term outlook. Nuvama Institutional Equities noted that inventory downstocking is common in FMCG, but the significant impact on Dabur was unexpected. They anticipate continued pressure on the stock until the company’s performance stabilizes.
Dabur’s management is taking corrective actions, including what they called a “one-time hit” to address the issue. They remain hopeful for a rebound in performance by the next quarter, especially with the upcoming festive season and better winter demand. However, analysts have reduced their earnings estimates for the next two years due to the Q2 correction.
Some brokerages downgraded their ratings on the stock. Emkay Global, for example, reduced its target price from Rs 750 to Rs 650, citing a surprise in Q2 inventory correction. On the other hand, Antique Stock Broking maintained its “Buy” recommendation, expecting a recovery as overall demand improves with favorable monsoon conditions.
Despite the current challenges, experts believe that Dabur India’s performance could see improvement in Q3, driven by better demand and a recovery in the rural segment, which contributes to a significant portion of the company’s revenue. The stock, however, is likely to remain under pressure in the short term.
