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Dabur and Zandu: Distant cousins - Views on News from Equitymaster
 
 
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  • May 19, 2000

    Dabur and Zandu: Distant cousins

    To a layman Dabur and Zandu are companies operating in the niche ayurveda segment. At first glance these companies seem alike because of their 'ayurvedic' image. But probe a little further and you find two very different entities.

    While Zandu Pharmaceuticals manufactures pharmaceutical preparations, Dabur India Limited is a 115 year old FMCG company operating in the niche natural/ayurvedic products segment with a product folio of over 500 products.

    Both companies specialise in branded ayurvedic products such as Ghritas, Churna, and Chyawanprash, but Dabur's product portfolio is not only more expansive in terms of brands, it also has a wider retail reach.

    A look at their FY2000 financial performance, further underlines this difference.

    Rs m Dabur Zandu
      FY00 FY00
    Sales 10,620 1,097
    Other income 345 10
    Expenses 9,620 1,015
    Depreciation 215 47
    Interest 315 45
    PBT 816 33
    Tax 45 2
    PAT 771 31
    Net profit margin 7.3% 2.8%
    EPS 27 78
    P/E ratio 26 36

    While Dabur definitely outpaces Zandu in terms of size and margins, Zandu historically enjoys better valuations (EPS and P/E multiples). The discounting of Dabur vis--vis Zandu on the bourses seems to be a result Dabur's frequent entry into new areas and the diversified range of its business. However, the difference in their valuations has come down quite a bit since Dabur embarked on a restructuring exercise recommended by McKinsey & Co.

    P/E ratio Dabur Zandu
    FY97 19.0 59.8
    FY98 19.2 30.9
    FY99 75.0 22.9
    FY00 26.2 36.2

    From the P/E performance over the years it is apparent that the bourses have taken note of the changes taking place at Dabur and are urging Zandu to pep up its act.

     

     

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