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We downgrade Dabur to ADD from BUY with TP cut from Rs750/sh to Rs650/sh, due to limited upside. We have been positive on Dabur given expected improvement in the demand setting from rural recovery (45% of revenue) and better winter demand (to aid mix). Q2 inventory correction is a surprise, where Dabur noted pipeline buildup. Channel hygiene (refer to report: Addressing channel hygiene key for restoring distribution moat) is an important issue with FMCG firms; restoration would be key for growth ahead. Unlike peers taking corrective measures over a period of time, Dabur has considered a one-time hit. Management sees growth rebound from Oct-24. Factoring in Q2 inventory correction (unlikely to reverse), we see earnings cut of 8-11% over FY25-27E. We take back execution premium from valuation and value Dabur at 47x P/E

Q2FY25 inventory correction in general trade, focus on trade hygiene

There has been an inventory build-up in general trade over the past few quarters, given the muted demand. Consumer adoption of organized channels like quick commerce has been healthy, which has had a direct effect on demand from general trade, and therefore, the inventory build-up. With the build-up of inventory, ROIs of general trade distributors have been impacted. Dabur India is proactively taking action to support its general trade distributors, who have been reeling from an excess inventory situation. The company has deliberately reduced primary billing to general trade outlets in Q2. Overall demand for the products remains healthy, with modest demand expansion in Q2. Inventory correction is effective across the portfolio pan-India

Q2FY25 result to hurt FY25 earnings show; expect rebound from FY26

Dabur India is likely to report mid-single digit revenue decline for Q2FY25. In India, we see high-single digit revenue decline (with ~9% volume decline), affected by the trade pipeline correction, and muted show in beverages impacted by weak out-of-home consumption. International business is likely to see double digit constant currency growth (mid-single digit growth on reported basis). The company is confident on growth revival from Q3. We remain positive on healthcare growth revival, where we see intense winter to aid (La-Nina effect). We see improving demand setting reflecting in high-single digit volume growth in 2HFY25. Affected by negative operating leverage and sustained marketing needs, consolidated EBITDA/earnings should decline ~17% YoY in Q2FY25

We remove execution premium; downgrade to ADD

Amid sustained hiccups and required corrective measures, we take back execution premium from the stock. Dabur has relatively underperformed (vs peers), and we expect this to continue in the near term. We remain hopeful of business recovery on the back of rural rebound and better winter sales. We downgrade to ADD from Buy. Any meaningful correction owing to tactical measures may offer entry opportunity, given long term fundamentals fall in place.

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