Dabur India Ltd., a maker of packaged honey, traditional medicine and hair oil, plans to set up two new factories and introduce more products in Africa as part of a goal to almost double profit in three years.
The factories in Johannesburg and Nairobi will start production by June next year, Chief Executive Officer Sunil Duggal said in an interview. Expanding overseas may help Dabur boost profit to 10 billion rupees ($221 million) by March 2014, he said in Ghaziabad near New Delhi, where the company is based.
Dabur, controlled by billionaire Anand Burman, also plans to add a factory in Sri Lanka to make beverages as it seeks to pare reliance on India, where inflation and competition from Unilever Plc and Procter & Gamble Co. are squeezing profits. The maker of Vatika shampoo aims to increase the share of overseas sales to 28 percent in three years from the current 22 percent.
“It makes sense to move, spring out to other emerging markets, because competition these days is very hard in India,” Taina Erajuuri, a Helsinki-based fund manager with FIM Asset Management Ltd. said. “It’s easier for Dabur to go to emerging markets than developed markets because there you have Unilever, Procter & Gamble and L’Oreal.”
Dabur rose 0.1 percent to 103.7 rupees at the close of trading in Mumbai today. The stock has risen 3.4 percent this year, compared with a 12 percent drop in the benchmark Sensitive Index of the Bombay Stock Exchange.
“The Africa market is the epicenter of our growth prospects for the future,” Duggal said May 13. “The upsides in some of these markets are as much, if not bigger than India. I’m talking about not just revenue growth, but profitable growth.”
Dabur’s profit for the year ended in March gained 13 percent to 5.7 billion rupees, after rising an average 21 percent in the previous three years, according to Bloomberg data. Sales may expand 71 percent to reach 70 billion rupees by March 2014, Duggal said. He didn’t disclose the value of the company’s investments in the new factories.
Consumer spending in Africa may double to as much as $1.8 trillion by 2020 as infrastructure improves and farm output increases, McKinsey & Co. said in a report last year. The continent’s gross domestic product, which expanded 4.9 percent a year from 2000 to 2008, will rise to $2.6 trillion by 2020 from $1.6 trillion in 2008, according to the report.
Still, inadequate infrastructure in many African nations may pose challenges to consumer product makers, said Naveen Kulkarni, a Mumbai-based analyst with MF Global Sify Securities Pvt., who has a “sell” rating on Dabur.
‘Difficult to Distribute’
“There are markets where for another 20 years there may not be a significant growth,” Kulkarni said. “You’d find it very difficult to distribute products.”
To tap the demand in Africa, Dabur has built two factories in Egypt and one in Nigeria that make products such as hair oil and toothpaste. Last year, the company acquired Turkey’s Hobi Kozmetik Group, which makes skincare and hair care products, and U.S.-based Namaste Laboratories LLC, a maker of hair products.
As much as a third of Namaste’s sales come from Africa, Byas Anand, a company spokesman, said. Dabur also sells bath gels, shampoos and skin creams in the continent under the Hobby brand, which came with the purchase of Hobi Kozmetik.
Marico Ltd. and Godrej Consumer Products Ltd., Indian competitors of Dabur, are also expanding in Africa through acquisitions. Marico has purchased the consumer division of Durban-based Enaleni Pharmaceuticals Ltd. and South African health-care brand Ingwe. Godrej bought a hair-color company in South Africa and a soap and body-lotion maker in Nigeria.
“Growth in Africa may not be driven by acquisitions in Africa,” Duggal said. “We’ll have to do things the hard way. We’ll have to buy companies outside Africa and then seed the markets with those products or develop our own products.”