Lower primary sales with heavy rain in Q2 to impact profitability: Dabur

Homegrown FMCG firm Dabur India Ltd on Tuesday said its profitability in the second quarter will be impacted due to low primary sales with heavy rain and floods in parts of India affecting out-of-home consumption and consumer offtake despite demand trends saw some improvement.

In its quarterly update shared on bourses, Dabur India said it expects to post a mid-single-digit decline in consolidated revenue for the second quarter due to a correction in distributor inventory in the general trade (GT) channel.

"While demand trends were witnessing some improvement, heavy rain and floods across parts of the country impacted out-of-home consumption and consumer offtake in Q2 FY25. Due to this, we saw some impact on our business especially in the beverage category," the company said.

Dabur India said during the last few quarters there has been "disproportionately higher growth" in organised channels such as modern trade (MT), e-commerce, and quick commerce, which has led to an increase in inventory levels in the general trade (GT) impacting the distributor return on investment (ROI).

"The company has taken an important strategic decision to correct distributor inventory in the GT channel and improve their ROI. This proactive step, while leading to a temporary decline, is essential for the long-term health and hygiene of our business," it said.

On account of this correction, Dabur said, "The company is expected to post a mid-single-digit decline in consolidated revenue for the quarter."

While this correction has happened in the India business, the international business is expected to register "double-digit constant currency growth in topline", the company said.

Badshah Masala business continued to perform well growing in double digits during the quarter, it added.

In the second quarter, Dabur said it continued to invest in its brands and advertising and promotions investments continued.

However, "as a result of lower primary sales our profitability will be impacted during the quarter and the operating margin for the quarter is expected to decline in the mid-to-high teens due to deleverage and continued investment behind brands", it added.

"This temporary corrective action is a necessary step to strengthen GT channel and enhance our efficiency and growth going forward," the company said.

Further, Dabur said it will continue to invest strongly in marketing and media initiatives, building distribution infrastructure and enhancing its backend capability.

"By streamlining the GT channel and with the strong growth momentum in alternate channels we expect revenue growth to revive from October 2024 onwards," the company said.