Dabur India - Destocking Drags Sales, Margins; Portfolio Pressure Intensifies: Systematix

Systematix Research Report

Dabur India Ltd. issued a quarterly business update for Q2 FY25. The company undertook a significant one-time inventory correction in general trade (general trade, ~80% of sales) in its India business (~75% of revenue) to improve distributor return on investment.

Consequently, management expects Q2 FY25 revenue decline in mid-single digits (Q2 FY24: +7% YoY, Q1 FY25: +7% YoY) and Ebitda decline in mid/high teens (Q2 FY24: +10% YoY, Q1 FY25: +8% YoY) due to operating deleverage and sustained investments in A&P/ brand building.

This implies Q2 FY25E operating margin decline of ~200-300 basis points YoY (Q2 FY24 OPM: 20.6%, Q1 FY25: 19.6%). Dabur saw double-digit CC growth in its international business (~25% of revenue; Q2 FY24: +24% YoY).

In food and beverage (~20% of India sales), beverages (Q2 FY24: -10% YoY, q1 FY25: +3% YoY) were impacted by lower out-of home consumption amid heavy rains and floods in parts of the country, while Badshah Masala delivered double-digit sales growth.

Management sees the GT destocking as essential for long-term health of the business. Dabur expects revenue growth to revive from October 2024 with streamlined GT and strong growth in alternate channels.

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