07 December 2010

Dabur India: pick of the week: ICICI Securities

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Dabur India Ltd has acquired 100% equity in Namaste Laboratories and its three subsidiary companies - Hair Rejuvenation & Revitalization Nigeria Limited, Healing Hair Laboratories International, LLC, and Urban Laboratories International, LLC along with its South African arm – for $100 million, in an all-cash deal, thus, stepping into the hair care products market in the US, Europe and Africa. The Namaste Group controls a 12% market share in the US and enjoys significant market positions in other countries of Africa, the Middle East, Europe and North America. The company’s net sales stand at $83 million with margins ranging at ~13%.Therefore, this acquisition would help the company to strengthen its presence in the African market while the existing distribution network of the Namaste Group in the US would help Dabur to introduce its products there. Thus, we believe the contribution to sales from the international business would increase to around 25% from around 20% currently.  



Financials:
At the current market price of | 96, the stock is trading at 29.2x its FY11E EPS of | 3.3 and 25x its FY12E EPS of | 3.8. With Dabur’s foray into new categories via acquisitions (Hobi Kozmetik and Namaste Labs) and strong earnings visibility with the ability to sustain margins, we have valued the stock at 28x its FY12E EPS of | 3.8, therefore, arriving at a target price of | 106.

Technical Outlook
A look at the long-term price chart shows that the stock is in a clear uptrend, consistently forming higher highs and higher lows on the weekly charts. The stock hit an all-time high of | 112.40 levels in mid-September 2010. Thereafter, it has witnessed a steady corrective decline
  • The most important observation to be made on the price chart is that the corrective price decline appears to have halted at the 50% retracement of the recent rally from March 2010 lows of 78 levels to the all-time highs
  • Also noteworthy is the fact that after a momentary dip below the 200 day exponential moving average (EMA) the share price has witnessed a strong bounce back accompanied by a sharp jump in volumes, thereby re-affirming buying support at the long-term moving average support
  • Among oscillators, the 14 period daily RSI has turned northwards from the oversold region and supports the current upmove whereas the MACD has also given a positive crossover below the trigger line indicating build-up of momentum on the upsides

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