4 hours Ago
A delayed and milder winter has thrown a wrench in packaged consumer goods major Dabur India Ltd’s seasonal sales plans, putting its shareholders on edge. From its 52-week high of 672 in September, the stock has shed around 25%. Dabur’s winter-centric portfolio, including Chyawanprash, Honitus, Lal Tail, and Honey, typically contributes 30-35% to its December quarter (Q3) revenue.
This year, however, the portfolio has seen a slower uptick, particularly in northern India, according to a Motilal Oswal Financial Services report dated 15 December. This sluggish start is likely to impact Dabur's Q3FY25 earnings. The management is hopeful that demand will shift from December to January, but the remainder of the winter season is a critical monitorable in the near term.
Elevated and sticky food inflation continues to dampen urban demand, though rural demand has been witnessing a gradual recovery. Against this backdrop, the company's management has remained focused on its Home and Personal Care (HPC) which has a lion’s share in its domestic revenue mix. Growth in this segment is expected to be driven by oral care, home care, and skin care products.
In the food & beverages segment, Dabur's management expects Badshah masala to do well in H2FY25. On the flipside, its beverages category, which suffered in Q2FY25 due to heavy monsoons and flooding, continues to face intense competition from brands like Campa Cola. The juices & nectar segment, in particular, has been under pressure.
To counter this, Dabur has introduced price cuts of 20-25% on large packs and expanded its juice offerings at accessible price points, such as 10, 15, and 50, to appeal to mass-market consumers. The effectiveness of these measures will be a crucial near-term monitorable. aims to strengthen its presence in the premium hair care market.
The management views this acquisition as margin accretive, with the potential to increase hair oil category gross margins from 44% to 57% and boost international sales. However, the benefits are expected to materialize gradually, given the slow growth in the hair oil category. Dabur aims to deliver mid-to-high single-digit volume growth in H2FY25, led by the home and personal care segment, followed by healthcare and food & beverages (F&B).
Remember, in Q2 FY25, Dabur’s earnings performance was impacted by one-time inventory rationalization to boost profitability for urban general trade partners. The management recently told analysts at Centrum Broking Ltd that it has since resolved inventory issues, cutting system inventory from 27 to 20 days. The management expects gross margins to improve gradually and Dabur is confident in sustaining Ebitda margin in the range of 19-20%, aided by price hikes.
In Q2FY25, Dabur’s Ebitda margin stood at 23.2%. Internationally, Dabur’s portfolio is expected to deliver low-to-mid double-digit constant currency growth, driven by strong performance in its West Asia and Africa markets.
Valuation concerns In this calendar year so far, shares of Dabur have declined around 9%, significantly underperforming the Nifty FMCG index, which is down 1.2%. The correction in the stock price has led to a moderation in valuations, but not enough to make it attractive.
According to Bloomberg data, Dabur is trading at a steep FY26 price-to-earnings multiple of 44 times. Dabur’s disciplined cost control, operational efficiencies, and strategic price increases are key measures to mitigate inflationary pressures. Additionally, the company is actively expanding its premium portfolio and total addressable market.
However, potential downside risks leave Dabur vulnerable to further reductions in earnings per share estimates for FY25 and beyond..
