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BL Research Bureau

Dabur India’s all-cash deal to acquire Fem Care Pharma for Rs 203.7 crore may bring in brands which are complementary to Dabur’s own in the personal care space and manufacturing facilities that allow it to expand its product basket. But the acquisition appears expensive in the context of Fem Care’s financials.

The sale consideration for a 72.15 per cent equity stake suggests that Dabur has assumed an enterprise value of Rs 300 crore for Fem Care.

Considering that Fem Care Pharma reported operating profits of Rs 16.52 crore on net sales of about Rs 80 crore in the past 12 months, it values Fem Care Pharma at about 17 times its operating profits and over 3 times its annualised sales.

This is at quite a premium to smaller listed companies in the FMCG space.

Dabur India proposes to pay about Rs 800 a share for the Fem Care stock, a stiff premium to the range of Rs 240-600 in which the stock traded in 2008, with exception of last week.

The fact that there are few established brands up for sale in the FMCG space and a reasonably low outlay for this buy may be reasons why Dabur decided on this deal despite the premium.

Dabur may manage to fund the deal quite comfortably out of its internal resources given that it generates over Rs 300 crore in cash from operations in a single year.

Fem Care Pharma owns entrenched brands in niche personal care areas.

A brand presence in West Asia and regions such as Malaysia, Maldives and Mauritius may offer benefits to Dabur, which has been expanding distribution in these regions for its brands. Fem Care’s manufacturing facilities in Nashik and Baddi may also offer additional capacity and tax breaks for Dabur.

However, with its relatively small revenue base (4 per cent of Dabur’s) and a margin profile slightly inferior to Dabur’s, the acquisition may not make a material difference to Dabur’s financials in the near term.

More Stories on : Stocks | Mergers & Acquisitions | Personal Products | Dabur India Ltd

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