Shares of Dabur India rose over 3% in opening trade on Thursday, a day after the FMCG major announced that it would acquire a majority stake in Badshah Masala, marking its entry into the over ₹25,000 crore branded spices and seasoning market in India. However, lower-than-expected September quarter earnings capped upmove for the counter.
The company has signed definitive transaction agreements to acquire 51% shares in Badshah Masala for ₹587.52 crore at an enterprise value of ₹1,152 crore.
As per the company, the acquisition is in line with Dabur's strategic intent to expand its foods business to ₹500 crore in 3 years and expand into new adjacent categories. "Our investment in Badshah Masala will help expand this business and continue to provide unmatched quality products. This acquisition will accelerate our growth strategy as we continue to build our Foods business. We intend to leverage our international market presence to grow this business globally," said Mohit Malhotra, chief executive officer, Dabur India.
Boosted by the development, Dabur India shares gained as much as 3% to ₹548.1 in opening trade, against the previous closing price of ₹532.1 on the Bombay Stock Exchange (BSE). On the National Stock Exchange (NSE), the largecap stock opened at ₹541.5 and rose up to ₹548 in early deals. As many as 20.32 lakh shares changed hands over the counter on the NSE and 0.4 lakh on the BSE. In comparison, the BSE benchmark Sensex was trading 367 points higher at 59,911 levels at the time of reporting.
The share price of Dabur India has fallen 8.5% in the past one year, while it dropped over 3% over a six month period. In the last one month, the stock has tumbled more than 3%, while it has risen 3.5% in a week. The counter hit a 52-week high of ₹620 on November 8, 2021, while it touched a 52-week low of ₹482.2 on June 17, 2022.
Q2 earnings fail to meet expectations
The consumer goods company also released its September quarter earnings on Wednesday, which failed to meet D-Street estimates as its top and bottom line growth were impacted by inflationary pressures and the consequential impact on consumption.
The homegrown company, engaged in manufacturing of personal care, healthcare, and food products, reported a 2.85% decline in its consolidated net profit to ₹490.86 crore for the second quarter ended September 30, 2022, compared with ₹505.31 crore in the same quarter a year ago. The consolidated revenue from operations rose 6% to ₹2,986.49 crore in Q2FY23, against ₹2,817.58 crore in the corresponding quarter of the previous fiscal.
The board of directors of Dabur India also declared an interim dividend of ₹2.50 per share, aggregating to a total payout of ₹442.94 crore for the financial year 2022-23.
Brokerages view on Q2 results
Post Q2 results, foreign brokerage Morgan Stanley has assigned an 'equal-weight' call on Dabur with a target price of ₹537. The brokerage in its report said that Dabur’s Q2 earnings were largely in-line with expectations, adding that the company’s growth in rural areas and healthcare business were weak.
Another foreign brokerage house Goldman Sachs has given a 'buy' call on the stock with a target price of ₹680, citing that acquisition of spices brand ‘Badshah Masala’ is a major boost for its ambition, but weak rural demand remains a key concern.
Board approves ₹325.87 cr for Indore plant
In a separate development, the company said that its board has approved the capital expenditure of ₹325.87 crore for its Indore project in Madhya Pradesh, which would be financed through internal accruals. Last year, the company had announced an investment of ₹550 crore for its Indore plant to expand its manufacturing capacity.
As part of its investment, the company will manufacture red toothpaste and one-litre juice packs, and increase the production capacity of portion packs of its range of juices. The work for capacity addition would be completed in the next 1.5 years, and production would start in March 2024, it said in an exchange filing.
