On Tuesday, consumer goods maker Dabur India announced its plan to buy US-based personal care products company Namaste Laboratories LLC and its three subsidiaries for $100 million — its second overseas acquisition this year.
The acquisition, which will be funded through low-cost overseas debt, is expected to close by December. The stock, which rose four per cent intra-day to Rs 101.5, ended the day 3.96 per cent down at Rs 93.30. It has been declining from the Rs 110 levels since early October.
Earnings accretive
Namaste’s 2009 sales, earnings before interest, tax, depreciation and amortisation (Ebitda) and profit after tax stood at $83 million, $12.5 million and $10 million, respectively. The US market contributed 72 per cent to revenues, while Europe and Africa accounted for eight per cent and 15 per cent, respectively. The businesses have grown 12-15 per cent over the past year. Notably, it reported a high return on equity of around 40 per cent.
| GROWING BIGGER | ||
| In Rs crore | Dabur | Namaste * |
| Sales | 3,391.4 | 418.5 |
| EBITDA (%) | 18.4 | 12.9 |
| PAT | 501.3 | 45.6 |
| * Pertains to last 12 months, while for Dabur it is for FY10; Source: Analyst reports | ||
The deal, however, will be margin dilutive for Dabur, as Namaste’s Ebitda margin is 13 per cent as compared to Dabur’s 18 per cent. Analysts, though, believe that Dabur could improve Namaste’s margins through better synergies between the two.
Visible synergies
Namaste’s product mix will help Dabur tap the US market and add significantly to its product portfolio for Africa. Dabur sells its products in north and south African countries, while Namaste has a presence in Nigeria and South Africa. Namaste’s portfolio includes products for hair loss, damaged hair, and drying and itchy scalp. It sells these under the brand Organic Root Stimulator.
Dabur’s hair-care segment has seen a slowdown and grew just two per cent in the September quarter. Its share in the shampoo space has been dipping for the last two quarters due to tough competition. Namaste’s product base, thus, may aid growth in this segment for Dabur.
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Analysts say Dabur is targeting distribution synergies with its existing African set-up and is aiming to grow sales 20 per cent annually.
Outlook
Dabur has demonstrated acquisition management capabilities with Balsara and Fem Care. As far as funding the deal is concerned, on September 30, Dabur had a debt of about Rs 300 crore and investments and cash worth Rs 550 crore. It is looking at funding the deal through dollar-denominated debt, which will have an interest rate of less than five per cent. While the lower Ebidta margins of Namaste may have some impact on Dabur’s consolidated margins, analysts believe the deal will be earnings accretive in the first year itself, ie, FY12 (due to a combination of low-cost funding, profit-making status and growth prospects of Namaste).
Analysts expect Namaste to add Rs 34 crore to Dabur’s bottom line, or around 20 paise to its consolidated FY12 earning per share. Meanwhile, they expect Dabur’s volume growth to remain healthy. Considering analysts’ price targets for Dabur, which range between Rs 103 and Rs 115, there is upside from the current levels.