Competitive Pressures and Margin Strain Lead to Sell Rating for Danone SA in Chinese Infant Formula Market

David Hayes, an analyst from Jefferies, maintained the Sell rating on DANONE SA (0KFX – Research Report). The associated price target remains the same with €61.00.

David Hayes has given his Sell rating due to a combination of factors impacting Danone SA’s position in the Chinese infant formula market. The recent announcement by Junlebao, a significant player in the market, of a substantial maternity subsidy program adds competitive pressure on Danone to implement a similar initiative to maintain its market share. This competitive environment is further intensified by similar subsidy programs already announced by other major players like Feihe and Yili.
Implementing a comparable subsidy program could potentially strain Danone’s margins, as indicated by the estimated impact on group margins. The need to protect its market share in a highly competitive market, where Danone’s Aptamil holds a 14% share, suggests potential financial headwinds. These challenges in maintaining profitability amidst increased competition and subsidy pressures are central to Hayes’s Sell rating.