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Shares of FMCG major Dabur India opened higher on Thursday after it announced the acquisition of 51 percent stake in Badshah Masala.

The Rs 587.52 crore acquisition will mark the company's foray into Rs 25,000 crore branded spices category.

Dabur also said that the remaining 49 percent stake in Badshah Masala will be acquired after five years.

The company also reported results for the September quarter on Wednesday that largely met street expectations.

Net profit of Rs 490.9 crore was exactly in-line with a CNBC-TV18 poll, that pegged it at Rs 490 crore. However, the company's net profit dipped 2.8 percent compared to the previous fiscal year's second quarter.

Revenue increased 6 percent to Rs 2,986.5 crore as against Rs 2,817.6 crore reported in the corresponding quarter last year. Analysts polled by CNBC-TV18 had estimated that the company would report a revenue of Rs 2,975 crore.

The earnings before interest, taxes, depreciation, and amortisation (EBITDA) declined 3.2 percent — from Rs 620.7 crore in second quarter of the previous fiscal crore to Rs 600.8 crore in the September quarter. The CNBC-TV18 poll had predicted the EBITDA to be around Rs 602 crore.

It's margin was 10bps lower than Street estimate of 20.2 percent. In the September quarter last year, the company had reported a 22 percent margin.

Dabur's volume growth for the domestic business stood at 1 percent, at the higher range of a CNBC-TV18 poll, which expected the figure to be 0-1 percent.

Spicing It Up

The organized spice market in India, which was valued at Rs 24,000 crore in 2020 is likely to be worth Rs 50,000 crore by financial year 2025, according to Avendus.

There have been multiple M&A activities within the spices space in recent times. ITC acquired Sunrise Foods for Rs 2,150 crore in May 2020, while Orkla with MTR purchased Eastern Condiments in a Rs 2,000 crore transaction.

Peers like Tata Consumer have also launched their spices under the "Sampann" brand. Nestle also sells its spice mixes under the Masala-ae-Magic brand.

Analysts Take

Goldman Sachs believes that the acquisition of Badshah will significantly boost Dabur's ambitions within the kitchen condiments space. The brokerage has maintained its buy rating and a price target of Rs 680 while citing a sharp rural slowdown and increased competitive intensity as key downside risks.

Morgan Stanley also highlighted weakness within the rural and healthcare segment as a key negative for Dabur. However, market share gains across most of the company's portfolio is a positive, according to the brokerage. It has maintained its equal-weight rating on Dabur with a price target of Rs 537.

Shares of Dabur are trading 1.7 percent higher at Rs 541, as of 9:40 AM.

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First Published:Oct 26, 2022 3:51 PM IST