As part of its strategy to strengthen its foothold in the fast-growing emerging markets, Abbott Labs (NYSE:ABT) has opened its first nutritional R&D center in India. The company has tied up with Syngene, a contract research unit of one of the country’s leading biotech company Biocon. The facility will assist the company in developing affordable nutrition products for the country.  Separately, the company has been trying to gain market share in the U.S. through expanding its product portfolio and has recently launched nutritional beverage for adults.  Below we take a look at how these events could impact the company’s value.
Abbott is a diversified healthcare major and is involved in development, manufacturing and marketing of pharmaceuticals and other medical products, including nutritionals and diagnostics. Its major competitors include Johnson & Johnson (NYSE:JNJ) and Merck (NYSE:MRK).
Our price estimate for Abbott Labs stands at $66, implying a premium of about 10% to the current market price.
India: A Growth Market
India has a large number of diabetic patients and it has also been grappling with the prevalence of malnutrition. Further, as the middle class continues to grow in India, discretionary spending is likely to increase. These reasons coupled with increased health awareness will drive demand for health supplements. This presents a huge opportunity and remains a key target for Abbott Labs.
The company has plans to have a fully integrated nutritional business in India and opening a R&D facility is part of that strategy. The R&D facility will help Abbott develop affordable nutrition products for malnutrition and diabetes while addressing local preferences for taste and texture. The company is also mulling to add local manufacturing as well as sales and distribution functions.
We believe that such a move will certainly help the company increase its penetration in emerging markets to boost sales. If Abbott’s plan materializes, this could positively impact the value of its nutritional division, which contributes about 13% to our current price estimate.
Expands Adult Nutritional Product Line in the U.S.
The nutritional industry is highly fragmented and many large pharmaceutical companies and packaged food and beverage companies compete for the same consumer base. Competition is mainly based on price, quality and the availability of new products. The new nutritional beverage will expand Abbott’s product line in adult nutritional market.Notes:
- Abbott looking to grow nutrition business in India, Market Watch, June 04 2012 [↩]
- Abbott Introduces Ensure Clear(TM) to Help Adults Fill Dietary Gaps, Abbott Press Release, June 05 2012 [↩]