Bold move in challenging market conditions

I have always associated the name "Dabur" or "Burmans" with the FMCG / consumer goods sector and specifically with products such a Meswak, Dabur Lal, Hajmola, Dabur Vatika, Dabur Chyawanprash and the like. While reading an article in Outlook Business magazine, it was really  interesting to know that the Burman family - the promoters of Dabur also have significant interests in the finance sector, especially the insurance sector.

Just to provide a brief overview: The Burmans first ventured into the insurance sector through their joint venture with ABN Amro Bank in 2001 to market the bank's life insurance products, then they also partnered with Fidelity International (Fidelity eventually acquired the Burman family's stake) & Aviva Life Insurance (holds a significant 74% stake) and introduced them to the Indian markets. And moreover, the Burman family's investments in the insurance sector is close to INR 2,000 crore - a fascinating figure considering Dabur India Ltd.'s revenue of over INR 4,000 crore today.

What surprised me the most was not that they have a presence in the finance/insurance sector........but the Burman family's decision to buy a 25% stake in Espirito Santo Securities, the Indian unit of the Portuguese Banco Espirito Santo with a view to enter the "highly" competitive and difficult equity broking business. Well you would ask me - "What's so surprising then? Its just another investment for a big group!" Yes, it is.

But the surprising thing is not the investment,

• What's surprising is: the timing of the investment (equity broking business in India is currently in deep trouble given the current market scenario; incumbent players are looking at other revenue streams to survive, low trading volumes and increasing costs are forcing broking houses to shut operations or downsize or looking to sell, historically foreign brokerages have chosen to leave India during times of turmoil) - rationale behind the investment seems to be buying/entering into a beaten down segment, taking a contrarian view and coming up trumps when the tide turns.
• What's surprising is: neither the Burman's nor their JV partner have extensive experience of equity broking in a difficult market as India.

Although Dabur claims that financial services is their second largest focus area after consumer goods; and their JV partner states that by entering into a partnership at this difficult juncture in the equity market when consolidation is the norm of the day, the Burman-Espirito Santo JV shall have the advantage of building market share before the industry consolidates & the good old days return to the Indian equity markets;

Only time will tell whether the Burman's will succeed in this extremely risky endeavour or shall history prevail and the Burman's will exit this financial services venture too as in the past!