30 November 2010
Dabur India :Namaste Lab acquisition is a positive; Buy:: BofA ML
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Dabur India — Namaste Lab acquisition is a positive; Buy
Price Objective Change: Namaste Labs acquisition is value accretive; Buy
Dabur has acquired Namaste Lab, a US-based ethnic Afro-American hair care co.
We expect the acquisition to be value accretive from FY12E onwards led by 1)
pick up in growth from product and distribution synergies 2) margin improvement
from higher scale and cost synergies and 3) low cost of funding. We raise our
estimates by 6-7% over FY11-12E to factor in the Namaste acquisition. We raise
our PO to Rs112 in line with the EPS increase. Buy on strong EPS CAGR of 26%
over FY10-12E and attractive valuation of 20xFY12E P/E post recent correction.
Deal details look attractive; Funding will not be an issue
Dabur has paid US$100mn, at 1.1xEV/Sales and 8.3xEV/EBITDA. This is a
reasonable valuation for a co growing at ~12% with 13% EBITDA margin and
healthy cash generation with no debt on the books. 72% of its business is in the
US and the rest is in emerging markets with an African population. Deal will be
funded through 5-year US$ loans to be raised at LIBOR linked rates estimated to
cost ~3% pa. Net gearing for Dabur will remain a healthy 15% despite this deal.
Product synergy – portfolio for the two companies are complimentary and Dabur
can use some of the therapeutic products in Middle East markets. Distribution
synergy – Areas of strength in Africa are complimentary (S Africa for Namaste
and Egypt for Dabur) and Dabur can use US distribution of Namaste for its
products. Cost synergy – African manufacturing plants of Dabur to reduce
transportation costs and use its marketing spend scale to bring down A&P costs.
Footprint in international markets goes up
Post this deal, we expect international biz to form one third of Dabur’s biz. This
highlights the company’s shifting focus towards international ops to increasingly
support its domestic growth which is grappling with increased competition.