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Dabur India Limited: Annual report Extracts - Views on News from Equitymaster
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Dabur India Limited: Annual report Extracts
Sep 14, 2010

Dabur is India's fourth largest FMCG company with interests in health care, personal care and food products. The company's name is generic to ‘ayurvedic' products in India and it has big brands like Vatika (hair oils), Chyawanprash, Hajmola, Amla oil and Lal Dant Manjan in its stable. In FY04, Dabur approved the demerger of its FMCG and pharma businesses into two separate listed entities. The move was aimed at bringing in more focus to both businesses, as well as to unlock value for shareholders. Further, the company acquired Balsara's business in FY05 for a consideration of Rs 1.4 bn and Fem Care Pharma in June 2009 for Rs. 2.5 bn. The company's business is divided into 3 segments, Consumer Care Division (comprising oral care, foods, home care, skin care, digestives, health supplements and hair care), International Business Division (IBD) and Consumer Health Division (CHD).

Dabur: Business Unit Revenue Share
The company had a phenomenal FY10. Dabur's sales grew by 19.7% YoY while it's operating (EBITDA) margins increased by 1.8% to 18.4%. This came on the back of fall in raw material costs. The company's bottomline on the other hand grew by 28.7% YoY aided by growth in operating income and fall in interest costs, partially offset by higher effective tax rates.

Dabur: Operating ebitda margin Dabur: Cost of goods sold

Sales of the Consumer Care Division (CCD) grew by 14.6% YoY during the year. This growth came on the back of new product offerings, product launches and expansion of existing product range with the launch of new variants. The year also saw the company introduce a variety of low-priced SKUs to increase affordability and deepen its rural penetration. These initiatives bore fruits as rural India was a big growth driver for the company. In fact, the demand from rural markets outpaced demand from urban markets in key categories like shampoos and toothpastes. IBD continued to be the fastest growth engine for Dabur. This division grew by a robust 26.3% YoY during the year. The growth was supported by strong volume growth and judicious price increases. Hair creams, toothpastes, hair oils and conditioners were the key categories which fueled growth. CHD grew by 15% YoY during the fiscal. This division turned in a healthy growth on the back of new launches, repackaging and transfer of brands from CCD. The company is looking to drive growth in this category with new OTC (over-the-counter) health product launches.

During the year, the business of Fem was integrated with the company and contributed 3.5% of the company's topline. The business strengthened Dabur's presence in skin care and provided new channels of distribution like beauty parlor and salons. In fact, Dabur has already started pushing some of its skin cosmetics through Fem's distribution channels. Over the year, Dabur increased its footprint from 18,000 parlors to 25,000 parlors.

Dabur's retail business, newu, went through a period of consolidation and rationalization with closure of non performing stores besides relocation of outlets. This led to an increase in sales and halving of losses for this venture. The company closed the year with 143 operational stores and plans to have 40 stores by the end of this fiscal.

The company's ROE improved from 43.7% to 53.7% during the year. This is a result of better profit margins seen during the year as well as higher asset turnover. However, during the year, the leverage of the company reduced as the company paid off some of its debt. While this reduced the ROE, it resulted in a stronger balance sheet for the company.

Dabur: Dupont break up

Debt to equity ratio also reduced from 0.28 to 0.19 during the year as a result of debt reduction and increase in networth of the company.

Dabur: Debt equity

Dabur invested Rs 1.3 bn in capex over the year but the return on sales was higher than the investment in gross fixed assets. This is evident from the graph as gross assets to sales fell from 30.6% to 29.1% during the fiscal. This shows that Dabur is utilizing its fixed assets more efficiently to generate sales.

Dabur: Gross Assets Sales

What we expect?
At a price of Rs. 108, the stock is trading at 25 times our FY13 earnings (RPro subscribers click here). The company has performed well on the back of its CCD and IBD with oral care, foods and home care divisions seeing good traction. However at these levels, we feel that growth from a 2-3 year perspective is priced in the stock. We therefore advise our subscribers to be cautious while investing in this counter.

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