Dabur to acquire 51% stake in Badshah Masala; stock rises 4%

The management said that the transaction is expected to be Cash EPS neutral in the first year and accretive thereafter.

Shares of Dabur India were up 4 per cent to Rs 551 apiece in Thursday’s intra-day trade, after the company acquired 51 per cent stake in Badshah Masala Private Limited for Rs 587.5 crore (the balance 49 per cent stake would be acquired after five years).

“The company has signed definitive transaction agreements to acquire 51 per cent shareholding of Badshah Masala Private Limited (Badshah), which is engaged in the business of manufacturing, marketing and export of ground spices, blended spices and seasonings,” Dabur India said.

This acquisition is in line with Dabur's strategic intent to expand in Foods business to Rs 500 crore in 3 years and into new adjacent categories. Moreover, it also marks Dabur's entry into over Rs 25,000 crore branded spices and seasoning market in India.

"The transaction is expected to be Cash EPS neutral in the first year and accretive thereafter. The acquisition is expected to be completed within this fiscal," the management added.

With this acquisition, analysts at ICICI Securities believe that the company is increasing its addressable market by entering many foods categories, which are either dominated by unorganised segment or has large growth potential. This would help the company to grow at a higher sustainable pace for a longer period of time, said analysts.

Meanwhile, on Wednesday, the fast goods consumer goods (FMCG) major reported a 2.85 per cent year-on-year (YoY) decline in consolidated net profit to Rs 491 crore for the July-September quarter (Q2FY23). The company's revenue from operations, however, rose 6 per cent YoY to Rs 2,986 crore in the recently concluded quarter.

Though inflationary pressures impacted growth in the rural markets versus urban for the first time in five quarters, the management expects a smart recovery in rural demand in the coming quarters.

"The company is investing ahead of the curve to ride this demand recovery by expanding its rural footprint by adding nearly 9,000 villages in Q2FY23 to take total coverage to over 100,000 villages," the management said.

Despite huge commodity inflation in the last one year, the company has seen minimal impact on operating margins in the last two quarters.

"Dabur is concentrating to increase its addressable market, specifically in many foods categories, with high share of unorganised market," said analysts at ICICI Securities, remaining 'positive' on the counter from growth as well as margin expansion perspective.