HMN just lately introduced the acquisition of the Dermicool model from Reckitt Benckiser India for Rs 4.32 bn. We estimate ~Rs 1.4 bn in FY23 gross sales for Dermicool, with an Ebitda of Rs 475 m, translating into an acquisition value of ~3x gross sales and ~9x Ebitda. COVID-led curbs affected summer time gross sales within the final two years, impacting general class progress. Therefore, its CY21 gross sales of Rs 1.13 bn aren’t consultant. We really feel CY19 gross sales of Rs 1.33 bn are a greater illustration. The deal shall be funded by inside accruals.

Dermicool is a part of the Rs 7.6-bn ‘Prickly Warmth and Cool Talc’ class, which registered a 12% CAGR over CY16-19 v/s ~5% CAGR for the broader Talc market (valued at Rs 25 bn). The acquisition of Dermicool, the third largest participant in class, provides HMN market management and a mixed market share of ~45%, surpassing Nycil (Zydus Wellness) which has ~34% market share. HMN’s Navratna Cool Talc is the second largest participant available in the market.

(a) Driving penetration progress within the Prickly Warmth and Cool Talc class (~11% penetration v/s ~45% for the broader Talcum Powder class), (b) share achieve from the broader Talcum Powder section, and (c) rising geographical enlargement of Dermicool are alternatives for HMN. The 38% Ebitda margin for the Dermicool enterprise is margin accretive to HMN’s (FY22e Ebitda margin of 30.4%) current portfolio. Whereas the model acquisition is EPS accretive (+6.8%/+6.6% in FY23E/FY24E), its delta is small ~4% of FY23E gross sales and is unlikely to maneuver the needle considerably, given the seemingly tempo of class progress.

The inventory is at present buying and selling at cheap valuations. We have now a Purchase score. Whereas gross sales progress over FY20-22e has been higher (9.3% CAGR) than the three.7% CAGR delivered within the previous 5 years, HMN, with FY22E gross sales of rs 32 bn, is way smaller than home friends like DABUR, MRCO, GCPL, and BRIT. The re-rating of its P/E a number of will rely upon gross sales progress bettering to 15-20%.

Mgmt commentary: Mgmt will ramp up advert spends for Dermicool, but it surely doesn’t anticipate a big affect on the model’s present Ebitda margin. Each Dermicool and Navratna have frequent distribution channels. Dermicool and Navratna are manufactured by the identical third-party producer and this association will proceed.