Dabur’s ‘spicy’ growth strategy to acquire majority stake in Badshah Masala

Over the years, FMCG companies have been acquiring well-known regional spices and spice brands to gain a foothold in this segment.

Spices and seasonings are an integral part of the daily cooking needs of Indian households. Growth opportunities are also reflected in the “spicy” valuations paid by FMCG companies for acquirer companies in this segment.

Earlier this week on Tuesday, Dabur announced the acquisition of 51% stake in Mumbai-based Badshah Masala. 5.9 billion This is an enterprise value (EV) for sales of approximately 6 times fiscal year 2022 revenue 1.9 billion

The company in a press release highlighted that they are paying around 4.5 times on EVs for sales over Badshah Masala’s annual estimated current fiscal year revenue.

Earlier, in May 2020, FMCG major ITC bought 100% stake in Sunrise Foods 21.5 billion or about 3.6 times the FY22 turnover 5.9 billion Sunrise Foods is well established in the Eastern Region.

Coming back to the acquisition of Dabur…

Mohit Burman, Chairman, Dabur India said in a press statement,

The Indian spices and condiment category is a large and lucrative market.

Badshah Masala is one of the key players in this space and this will accelerate our growth strategy as we continue to build our food business.

Dabur has also highlighted that it intends to expand its business in the food and allied category 5 billion over the next three years.

The annual turnover of the branded spices segment is expected to be higher With 250 billion nationwide distribution reach, top FMCG companies like ITC and Dabur can provide spices at neighborhood kirana stores similar to soaps and shampoos.

How FMCG Shares Have Performed Lately

FMCG stock has been trading near its 52-week high recently along with many stocks in this segment.

ITC ended trading on Tuesday 346 and its 52-week high . not too far from 354.

Meanwhile, Dabur closed the business on Tuesday. 532, while it had a 52-week high 620.

Yesterday, the stock gained more than 1% following the acquisition announcement.

In the past one year, Dabur’s share price has underperformed its peers and has lost 9%.

Dabur Share Price – 1 Year Performance

Data Source: Ace Equity

Comparative Analysis of FMCG Stocks

Data Source: Equitymaster, Ace Equity

With rising interest rates and signs of a slowdown in the global economy due to the Russia-Ukraine war, investors have been flocking to the “relative safety” of domestic-focused FMCG stocks.

The FMCG sector is an evergreen sector. It is related to the topic of consumption in India.

You rely on FMCG products every day, be it daily essentials like food and beverages, or household and home care products like paper goods and cosmetics.

However, note that FMCG is the sector that tends to fluctuate the most with the smallest disruption in the market.

With ITC trading at 23.6 times FY13 estimated earnings and around 48 times for Dabur, the near-term growth opportunities have been priced by Dalal Street.

Happy investment!

Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated from equitymaster.com