Dabur dips as buyers turn cautious after FMCG major warns of margin hit in Q2 due to soaring inflation

Dabur India share price tumbled nearly 2 per cent as the Street turned cautious after the company flagged that soaring inflation during the July-September quarter could lower its operating margin. At 11 am, the scrip was down by around 1.50 per cent to trade at Rs 537 on the NSE.

Earlier on Thursday, the FMCG major shared an update on the performance during the quarter ended September 30, 2022, wherein it said that inflation was at peak levels which impacted gross margins. The company said that its domestic business had a steady performance. However, it is expected to report revenue growth in the mid-single digits mainly due to higher inflation.

During the quarter, inflation was at peak levels which impacted gross margins. It said that the geopolitical situation continued to impact the business with unprecedented inflation during the quarter.

"The input cost pressure led to a near-term impact on operating margin which is expected to be lower by around 150-200 bps as compared to Q2 FY22 but will see sequential improvement," it said.

Going forward, Dabur expects that moderating inflation and the festive season should support consumption growth in the second half of this fiscal.

Dabur is due to report earnings for the second quarter on October 26.

What Brokerage Says - Price Target

Motilal Oswal believes that the medium-term and structural narratives of Dabur on revenue growth are highly attractive, led by the initiatives taken by the new CEO in recent years on power brands, distribution, launches, and better analytics.  

The FMCG company’s sales visibility in the near term is better than its peers, the domestic brokerage said. It expects Dabur’s margin to expand in FY24.

“Coupled with higher pricing power versus its peers, the visibility on Dabur’s earnings is better," the brokerage said in its research report.

Motilal Oswal maintains a Buy rating with a target price of Rs 660 per share, implying an upside of 21 per cent as compared to Thursday’s closing of Rs 545 levels.  

Shares of Dabur India have underperformed the market by declining by over 12 per cent in the last one year as compared to around a 3 per cent fall in the Nifty50. Year-to-date, the counter has declined nearly 7 per cent against an almost 2 per cent fall in the benchmark index.

In comparison, the Nifty FMCG in the last one year has gained over 9 per cent and around 17 per cent in the year-to-date period.