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Dabur: In a trough - Views on News from Equitymaster
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  • Jun 12, 2002

    Dabur: In a trough

    Slowdown and competition seems to have finally caught with Dabur Limited, India's largest ayurvedic FMCG company. In 4QFY02, the company actually reported an 8% decline in topline (the first negative in last few years). Its net profit saw a 67% decline during the said quarter.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Net Sales 3,039 2,812 -7.5% 11,665 11,632 -0.3%
    Other Income 68 60 -11.0% 159 139 -12.6%
    Expenditure 2,704 2,657 -1.7% 10,445 10,566 1.2%
    Operating Profit (EBDIT) 335 155 -53.8% 1,220 1,066 -12.6%
    Operating Profit Margin (%) 11.0% 5.5%   10.5% 9.2%  
    Interest 48 53 8.7% 297 240 -19.3%
    Depreciation 62 55 -12.3% 225 210 -6.5%
    Profit before Tax 292 108 -63.1% 858 755 -12.0%
    Extraordinary items 0 0   -6 0  
    Tax 26 20 -24.6% 73 111 52.7%
    Profit after Tax/(Loss) 266 88 -66.8% 779 644 -17.3%
    Net profit margin (%) 8.8% 3.1%   6.7% 5.5%  
    No. of Shares 28.5 285.6   28.5 285.6  
    Diluted Earnings per share* 3.7 1.2   3.6 2.3  
    P/E Ratio   42.0     23.0  

    Overall, Dabur finished FY02 with a minor fall in topline and a 17% decline in net profit. However, as per the company release, sales during FY02 grew by 1.9% on like to like basis (excluding some of the businesses such as herbal intermediaries which were discontinued and restructuring of exports business in Middle East). The company also carried out a pipeline correction during 4QFY02 due to which primary sales were affected.

    The pipeline correction in 4QFY02 as well as the company's inability to check costs in tandem with the decline in topline saw operating margins halved during the quarter to 5.5%. The quarter's performance bore its stamp on FY02 numbers, which saw its OPM fall to 9.2%. Apart from its raw material expenses, Dabur has not been able to cap its other expenses. Its staff costs were up 8% in FY02. Its advertising expenses during the period were up 6% YoY. Its advertising to sales ratio increased by 80 basis points to 13.3%.

    Cost break-up
    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Raw material 511 459 -10.2% 2306.8 2,066 -10.4%
    Staff cost 184 206 11.6% 717.3 775 8.0%
    Finished goods purchased 815 719 -11.8% 3077.9 3,090 0.4%
    Advertising 465 429 -7.8% 1460.7 1,545 5.7%
    Others 728 845 16.0% 2881.9 3,091 7.3%
    Total Expenditure 2,704 2,657 -1.7% 10,445 10,566 1.2%

    The net profit figure for FY02 has been arrived at after adjusting for deferred tax of Rs 56 m and extraordinary R&D expenditure of nearly Rs 58 m on clinical trails of new drugs under development. If we exclude these, net profit has declined only marginally YoY. However, the company's release also states that Dabur had earned Rs 30 m as profit on sale of a brand last year. Excluding this from FY01 profit, YOY growth in net profit during FY02 was 1.1%.

    At the current price of Rs 52 the stock trades at 23x its FY02 annualised earnings. Dabur has one of the better valuations in the FMCG spectrum. Competition from Zandu, Baidyanath and Himalaya Drugs is taking a toll on Dabur's dominance in ayurvedic products. Also, with HLL making a small entry in this segment, Dabur has to gear up its act. Its tough times ahead for Dabur.

    Another big concern for investors should be Dabur's management, which is now largely family run. Also, the promoter's have recently entered into a JV with a foreign partner for its insurance foray. There may be a conflict of interest between the two businesses going forward.



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