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Acquisition to help in driving growth…
Dabur India Ltd (DIL) with its diverse product portfolio, extensive
presence in under-penetrated categories and ability to foray into new
categories by successfully driving inorganic and organic growth is
expected to capitalise on growing FMCG trends. Subsequently, we expect
net sales to grow ~15% and net profit to grow ~14% in FY11. DIL’s
product portfolio is present across diverse categories, namely personal
care, health care, home care, foods and classical ayurvedic products. It is
expected to sustain its sales growth momentum buoyed by a slew of
product launches (mango and orange flavours in Chyawanprash) and
synergistic inorganic acquisitions (Hobi Kozmetik and Namaste Labs),
thereby, enabling it to further supplement its product portfolio.
Acquisition of Namaste Laboratories for $100 million
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.
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.
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