Dabur stock gets a boost as it enters spices business, gains market share

FMCG major Dabur's share price rose over 2% in a flat Mumbai market on Thursday after three trigger points for the stock. 

The company announced a plan to enter the over $3 billion Indian branded spice market, reported its results and also put up a capital expenditure plan to boost capacity.

Spices

Dabur said it has inked an agreement to acquire Badshah Masala, which makes, markets and exports ground spices, blended spices and seasonings.

The move comes two years after Dabur rival ITC Ltd sought to expand its presence in the food business with the acquisition of spice maker Sunrise. ITC already had its presence in the market with its own mothership food brand Aashirvaad.

Dabur is buying a 51% stake in Badshah Masala for Rs 587.52 crore, less proportionate debt as on the closing date, at an enterprise valuation of Rs 1,152 crore. This translates to a revenue multiple of around 4.5x and EBIDTA multiple of around 19.6x of FY2022-23 estimated financials of Badshah.

Badshah had revenue of Rs 189.1 crore for the year ended March 2022. This means the company is projecting to clock revenue of Rs 256 crore this year. The transaction is expected to be cash EPS neutral in the first year and accretive thereafter.

This acquisition is in line with Dabur’s intent to expand its foods business to Rs 500 crore in three years and expand into new adjacent categories. This also marks Dabur's entry into the over Rs 25,000 crore branded spices and seasoning market in India.

The company also plans to leverage its international market presence to grow this business globally.

Results, capex

Dabur reported 6% growth in consolidated revenue for the second quarter at Rs 2,986.5 crore. Growth was pegged higher at 8.5% on constant currency basis. It ended the second quarter with a net profit of Rs 490.1 crore.

It also gained market share across 95% of its product portfolio with 410 bps market share gain in the juices & nectars category, while its share of the digestives category improved 270 bps. The Chyawanprash market share increased 120 bps and its share of the shampoo category improved 40 bps. Dabur’s share of the hair oils market increased 20 bps.

The company’s board has also approved the capital expenditure of Rs 325.87 crore for its Indore Project in Madhya Pradesh to boost production of toothpaste and juices. The additional capacity will come on stream by March 2024.