Dabur merges food business with parent

Dabur merges food business with parent
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First Published: Thu, Jul 12 2007. 01 32 AM IST
Updated: Thu, Jul 12 2007. 01 32 AM IST
Branded honey and ‘chawanprash’ maker Dabur India Ltd (DIL), which is looking at an acquisition-led growth strategy, has merged its wholly-owned subsidiary Dabur Foods Ltd (DFL) with itself to set the ground for large acquisitions in the foods and consumer staples business. The merger will be effective from 1 April, said DIL in a statement.
“Dabur is looking to acquire companies in the ready-to-cook market and introduce energy drinks and drinking yogurts,” said a Dabur official who requested anonymity.
The company was also in the race to acquire Singapore consumer staples manufacturer Unza Holdings Ltd, which was sold to Wipro Ltd in a keenly fought bid earlier this month.
DFL, which began operations as a separate division in 1996, will now become one of the business divisions of DIL alongside its consumer and health-care business.
However, no new shares will be issued since DIL owns 100% of the outstanding shares of the food company.
“Through this merger, we will be able to invest and expand more effectively due to our combined scale, profitability and global reach,” said Sunil Duggal, chief executive officer, DIL.
Duggal will continue to be the chief executive of the merged company, while Amit Burman, currently CEO of DFL, will step down.
Burman will, however, remain a director on the board and guide the food business of the company.
Companies such as MTR Foods which make ready-to-cook food products have been valued richly despite weak or non-existent profits in recent mergers and acquisitions.
Norwegian food company Orkla acquired MTR Foods at a valuation of Rs400 crore.
Earlier this month, the Tata group acquired a 70% stake in Innovative Foods Ltd, which sells Sumeru branded parathas, samosas, spring rolls and curries.
Analysts opine that Dabur Foods, which owns brands such as Real and Coolers, can now undertake larger acquisitions, which could have been difficult earlier with a smaller balance sheet.
“The merger will help Dabur Foods to leverage from a bigger balance sheet for possible acquisitions and expansion,” said Anand Shah, an analyst at Angel Broking, a Mumbai based brokerage firm.
Had DFL to undertake a larger acquisition in relation to its limited revenues, it would have been forced to rely on DIL to help fund the deal.
So from the perspective of debt funding and interest costs, the merger, feel analysts, makes better economic sense.
“Dabur Foods could now also save considerable advertising cost, being a part of a better and bigger brand of Dabur India,” said Sumeet Budhiraja, senior vice-president of research at brokerage firm First Global Equities.
Dabur Foods reported a turnover of Rs260 crore, contributing 11% to Dabur India’s total turnover at Rs2,233 crore.
The food business grew at 36.5% during the fourth quarter, ahead of other categories such as consumer and health care on a percentage growth basis.
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First Published: Thu, Jul 12 2007. 01 32 AM IST