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Dabur and Zandu: Distant cousins

May 19, 2000

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-a-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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