Dabur's Beautiful Buy

Health and personal care giant Dabur sprung a surprise at the beginning of the past weekend when they announced that they were going to buy a seventy percent stake in emerging Pharma Company Fem Care. What has been even more surprising is the price tag for Fem. A very formidable price of nearly Two Hundred and Four Crore Rupees will be shelled out by the health care major. There is however no reason for any shareholder to panic because this acquisition is expected to strengthen the company and make it more profitable in the coming years.

The buy is in line with Dabur’s expansion plans. The company has shown intent to take their products overseas and introduce newer products within the Indian market. A part of this expansion phase in Dabur’s plans has been to diversify into newer product groups and selling goods.

In that sense Fem is a perfect fit under the Dabur umbrella.Fem is the undisputed market leader in the women’s fairness bleach market. In fact all of Fem’s successes have been due to their line of women’s products whether it is bleach, soap, hair removers or fairness creams.

Trying to enter this very competitive space and dominate it would have been difficult even for a giant like Dabur. It was therefore a smarter move to persuade Fem to sell themselves to Dabur.

What is good for Dabur is that they are sitting on a mountain of cash. The entire acquisition will be funded with internal revenues. Shareholders should therefore be delighted to hear that the company is putting their cash to good use. To say that everyone is happy with the buy would be unfair because there are some who continue to feel that Dabur have overvalued Fem and have therefore ended up paying more.

They will be paying Eight Hundred Rupees/share of Fem which is around a Hundred Rupees higher than today’s closing price of Fem Pharma. However, this is a minority opinion as has been evident with many buying Dabur’s stock making it a gainer these past 2-3 days including today when the Sensex fell 200+ points.

Fem is a good buy because in addition to a loyal customer base, it’s also a preferred product of beauty parlors and salons. In fact the strong supply base of Fem from a salon perspective bodes well for Dabur as they will be in a position to reap the benefits of the reputation that the product has built over the years.

It also holds a competitive edge over similar products from foreign competitors .The fairness bleach industry in India is only going to expand the next decade and by combining Fem with Dabur’s health care expertise almost certainly guarantees a mouth watering range of products in the coming years.

At the end of the day, it‘s a bold move by a company like Dabur which has for years concentrated on their own limited line of products. Now that they’ve decided to Branch out and diversify, others need to watch out.