Abbott Plans New Manufacturing Facility To Expand Indian Nutritional Business
Abbott Labs (NYSE:ABT) is taking next steps as part of its plans to strengthen its foothold in the fast-growing India’s nutritional market. The company will be investing approximately $65 million toward building its first nutrition manufacturing facility in India’s Gujarat state. [1] Recently, the company opened its first nutritional R&D center in India through a tie-up with Syngene, a contract research unit of Biocon, one of the country’s leading biotech company. Below we take a look at how these events could impact Abbott, a diversified healthcare major with a vast array of pharmaceuticals and other medical products, including nutritionals and diagnostics in its portfolio.
While our current price estimate for Abbott Labs stands at $66, we are awaiting the company’s 10-k filing before we revise our price estimate to reflect the recent developments.
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India: A Key Market Among Fast Growing Emerging Markets
India has a large number of diabetic patients and it has also been grappling with the prevalence of malnutrition. Further, as its middle class continues to grow, 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. To tap this expected surge in demand, the company has plans to have a fully integrated nutritional business in India and opening a manufacturing facility is the next step in that strategy. The plant will produce a range of nutritional drinks such as Ensure for elderly people and PediaSure for kids.
The company recently opened a nutritional R&D center in India, which 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 sales and distribution functions.
The company is eying other emerging markets to give a boost to its nutritional business. It is also building manufacturing facilities in China. On a similar note, the company recently struck a R&D deal with a Russian group . We believe that such moves 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 currently contributes about 13% to our current price estimate.
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Notes:- After Teva, US-based pharma giant Abbott Laboratories enters Gujarat, Business Standard, August 13 2012 [↩]