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Dabur: Riding on Ayurveda

Oct 5, 2009

Laid out below are some of the key extracts from the company's FY09 annual report. Health Supplements
This category reported an 11.3% growth during 2008-09. Dabur Chyawanprash, which is the flagship brand in this category, recorded good gains in market share, which went up from 62.3% in FY08 to 64.1% in FY09. This increase was supported by a number of initiatives taken to enhance the brand image and increase consumer awareness. The key among them was enlisting M.S.Dhoni as brand ambassador in addition to Amitabh Bachchan and launch of a new packaging format. The sugar free variant Dabur Chyawanprash also performed well during the year supported by increased consumer acceptance for this product. Dabur Honey continued to show robust growth supported by Amitabh Bachchan and MS Dhoni as brand ambassadors. The company to drive consumption among kids launched Dabur honey in the Winnie the Pooh pack. This showed good results during the year. The company also tied up with Zaheer Khan to market its Glucose drink. This, supported by launch of new packaging and new flavors in Orange and Lemon helped the company maintain it s market share in this category.

Oral Care
This category reported a growth of 4.8% during the year with toothpaste segment growing by 11.3%. The growth in toothpastes came on the back of new launches (Babool neem variant) and relaunches (Meswark). Further, the company invested in its brands in the form of advertising and launching of more attractive packaging. Red Toothpowder declined marginally albeit maintaining its market share. This is a reflection of the changing usage patterns as consumers are opting for toothpastes rather than toothpowders

The digestives category reported growth of 11.8% YoY during FY09. The growth in this category came on the back of several marketing initiatives undertaken by the company. During the year, the company launched a consumer contact campaign to promote Hajmola among dabbawalas, dhabas, hotels, restaurant chains, food courts etc. Dabur also adopted 140 dhabas on the five highways connected to Delhi and branded these dhabas, giving them a new look and feel. Customers at these dhabas were served Hajmola as the post-meal digestive. Bolstered by the success of this initiative, similar initiatives where undertaken with the dabbawallahs (tiffin carriers) in Mumbai and branded food retail chains in NCR. The company also introduced new Hajmola variants like Pudina and Nimbu which helped boost sales. A key initiative during the year was the introduction of Mega jars which enabled Hajmola Candy to make its way back into large retail outlets where it was previously being overtaken by local and other brands.

Hair Care
Hair care segment recorded a sales growth of 22.8% YoY during FY09. This growth was led by strong increase in sales of Amla Hair oil supported by conversion of customers from loose mustard oil. This came on the back of Re.1 sachets launched during the year. Vatika oil also saw robust growth driven by new packaging and new product benefit positioning. The company also launched 2 variants Vatika Enriched Almond Hair Oil and Dabur Amla Flower Magic Hair Oil in the light oil category. Vatika shampoos increased its market share from 5.7% in FY08 to 6.8% in FY09 due to a strong franchisee

Baby and Skin Care
The Skin Care category saw robust growth on the back of a strong franchisee built on ayurvedic platform.

Home Care
The portfolio registered a sales growth of 9.7% YoY during FY09. The portfolio comprises of 3 categories: Air Care, Mosquito Repellants and Surface Cleaners. This category saw growth on the back of new innovations and marketing initiatives. The company launched Ail - Freshener Gels, Odomos naturals, containing citronella and aloe vera, and Dazzl floor disinfectant and antibacterial kitchen cleaner. The company roped in Smriti Irani for Dazzl and Saakshi Talwar as brand ambassadors which help boost sales.

The foods business recorded a sales growth of 14.4% YoY for FY09. The growth came on the back of robust sales in the real and Activ range of fruit juices supported by new advertisement initiatives undertaken by the company to increase awareness of the health benefits of the fruit juices. The company also launched new flavors like Apple Nectar during the year which helped push sales.

International Business Division
Sales of the International Business Division grew by 39.9% YoY during FY09. This growth has been a combination of both volume as well as value growth. A significant contributor to the division's growth during FY09 was geographical expansion, resulting from opening up of fresh markets like Lebanon, Turkey, Algeria, Morocco and Mauritania. The division's sale growth was boosted by robust performances in key geographies like Gulf Cooperation Council countries, Egypt, Nigeria and Bangladesh. The growth was led by increased distribution penetration and focused brand approach. During the year, the company launched a slew of new products which also helped boost sales

Consumer Health Division
During the year under review, Consumer Health Division registered an 18.9% growth, with both, the Ethical & OTC portfolio doing well across the range driven by packaging upgradation, mass media activities and a whole range of on-ground consumer activations including Dabur Ayurvedic Health Camps. The company also roped in Juhi Chawla as its brand ambassador for the women's health portfolio which helped boost sales.

Balance Sheet Analysis
The current ratio of the company stands at 1.2 times in FY09, up from 1.1 times in FY08. While this is low compared to Marico (2.1) or Godrej (2.2), it is still comfortable given the company's cash flow which ensures short term liquidity. Sale to asset ratio has fallen from 1.9 times in FY07 to 1.5 times in FY09 signalling that the efficiency of the company to generate revenue from each unit of investment in assets is deteriorating. We expect this ratio to climb as the company starts getting returns on its investment in Fem Care. Return on equity has fallen from 61.3% to 48.4%. This is due to higher retained profits in an effort to build up a war chest for acquisitions.

What we expect
At the price of Rs. 143, Dabur is trading at 22.7 times our FY12 earnings estimate. We find that Dabur has embarked on a growth path, expanding in new geographies and inorganically. This requires a large investment behind brands. While the efficiency of the company maybe suspect in the medium term we expect better returns when the investments reach critical mass. We are also comforted by the fact that Dabur has a negligible amount of long term debt on its balance sheet. We also believe that Dabur has some very strong brands in its portfolio which will provide it the momentum to grow.

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